How do you know that your social venture is achieving its goals? It’s important not only that your venture promote a “good cause,” but also that its social returns argue for increasing investments
Social Return on Investment (SROI) measures social impact in dollar terms. Whereas financial return is relatively straightforward, differences in personal values and definitions of “social impact” require varying measures of social return.2 In fact, many social returns are impossible to quantify, making this a necessarily inexact science.
SROI can be thought of in terms of jobs created, houses built, or lives saved. But to start a social venture, you need to come up with a model to measure your particular social impact. A working SROI model helps investors determine the attractiveness of a potential investment. Documenting meaningful social returns is crucial; without an understanding of the tangible and measurable effect created through an investor’s activity, the reasons to engage in this critical work are merely anecdotal.
Your cash flow budget is one of the most important financial statements you have. Done correctly, it provides your business with the necessary checks, balances, and financial controls to guide performance, win bankers’ hearts, and keep spending and investment impulses in check. Developing a budget is simple, and when created with solid sales and expense forecasts in mind, you can ensure that your budget will stand up to the daily demands of your business.
Here are some steps you can take to create a cash flow budget you can rely on:
- Set business guidelines and goals.
- Review current economic and business conditions; consider how they will affect your business.
- Forecast sales for the budget period.
- Forecast expenses for the budget period.
- Prepare a profit-and-loss projection.
- Run a reality check on the numbers. Compare them to your goals, trade figures, and historical figures.
- Project monthly cash inflows for the budget period.
- Project monthly cash disbursements (outflows) for the budget period.
- Project operating data. Move controllable items around to achieve the best positive cash flow possible.
- Prepare your cash flow budget: the “finished”cash flow projection. Look for periods of negative cash flow, as well as unusually positive periods.
- Compare budgeted with actual performance monthly.
- Review performance and recast forecasts (both P&L and cash flow) annually or as needed.
From “Financial Troubleshooting,” Inc. Magazine, August 2000, by Michael Pellecchia
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