Let me start with a disclaimer, because this article comes from my own practical experience running a few web design firms for nearly 25 years. That said, my financial mentor and all around Finance guru David Worrell, founder of FuseCFO (and author of The Entrepreneur’s Guide to Financial Statements) is absolutely going to kill me for writing this and who just may send a cease and desist, but what the heck! Love ya Dave!
In the bustling world of small creative and technical firms – think vibrant advertising agencies, innovative web design studios, dynamic IT shops, and insightful business consultants – cash flow is the pulsing heartbeat of success. These firms, often with 2 to 20 employees, are not just workplaces; they’re hubs of creativity and technical expertise where owners and partners are deeply involved in daily operations. One crucial aspect that keeps these energetic firms thriving is effective cash flow management.
Introducing the HWSC Model: A New Lens on Cash Flow
While the traditional approaches to cash flow forecasting, dictated by the Generally Accepted Accounting Principles (GAAP), serve a broad purpose, they often overlook the unique nuances of small creative and technical firms. This is where the “Have, Will Have, Should Have, Could Have” (HWSC) model comes into play. This model isn’t part of GAAP, but it offers a practical, real-time perspective by integrating data from diverse sources like accounting and project management tools into a comprehensive dashboard.
The HWSC Breakdown: Understanding Your Financial Standing
The first step in leveraging the HWSC model is gaining a clear understanding of your current financial position – the ‘Have.’ This element of the model helps you pinpoint exactly where your firm stands financially at any given moment. It’s about knowing your exact cash position – how much is in the bank, how much is due in, and how much needs to go out.
Forecasting the Future: The ‘Will Have’ Perspective
Next, we delve into the ‘Will Have.’ This part of the model projects your firm’s financial trajectory over the coming months. It’s not just about looking at your current bank balance but also forecasting incoming revenue from ongoing projects and potential new clients. This foresight is crucial for planning – whether it’s for scaling up, investing in new tools, or simply ensuring that your firm can comfortably cover upcoming expenses.
The Ideal vs. the Possible: ‘Should Have’ and ‘Could Have’
Then comes the ‘Should Have’ and ‘Could Have’ components. These aspects encourage you to think beyond the immediate financial picture. ‘Should Have’ makes you reflect on the ideal financial situation for your firm, considering all your planned activities and expected revenues. On the other hand, ‘Could Have’ pushes you to consider alternative scenarios and potential opportunities that could positively impact your cash flow.
Navigating Late Payments: A Critical Challenge
One of the key benefits of the HWSC model is its ability to help you navigate the tricky waters of late or missing payments. For instance, understanding the impact of delayed payments from clients on your firm’s cash flow can help you make strategic decisions about spending and investment.
Ensuring Timely Salaries: A Happy Team is a Productive Team
Another crucial aspect where the HWSC model shines is in ensuring that your team members are paid on time. Delays in payroll can significantly affect morale and productivity, and the HWSC model helps you plan ahead to avoid such situations.
Bringing It All Together
Managing cash flow effectively is not just about keeping your business afloat; it’s about empowering your creative and technical firm to reach new heights. The HWSC model offers a fresh, practical perspective tailored to the unique dynamics of small firms in the creative and technical sector.
While unconventional and not part of GAAP, this model provides a robust framework for combining various data sources into a useful dashboard for forecasting cash flow. It’s designed for those who are deeply ingrained in the day-to-day operations of their businesses and often find themselves in the ‘hand-to-mouth’ cycle of managing finances.
The Bottom Line (Your Net Net)
As you manage your creative or technical firm, consider embracing the HWSC model for a clearer, more tailored approach to cash flow forecasting. It’s about making informed decisions that not only keep your business running smoothly but also foster growth and innovation.
