Have you ever run into a situation where you do not have enough money to cover all of your costs for the week, but thought you did? Have you ever had too much money and didn't know if you could invest it or not?

Well, these are common problems for business owners alike. It does not matter how much profits you are making in your business, how much your sales are, or if you do not have enough cash to cover your expenditures. If any of these conditions are happening in your business then you are not managing your cash properly. This can easily be resolved by implementing a simple technique that will give you advance notice of any problems in your cash flow. It will also allow you to determine how much money you can invest before you will need to use any of this excess cash at a later date.

The simple procedure is called CASH FLOW PROJECTIONS. A Cash Flow projection is a forecast of cash funds that you anticipate receiving, on one hand, and distributing on the other hand, through the course of a given time span. It is the anticipated cash position at specific times during this reporting period.

This concept can be developed very easily on a spreadsheet program on your computer. If you are not using computers just yet, you can still use this technique, you will just have to recalculate some of the numbers more often.

The short explanation of this technique is that your project, on a weekly basis, what is your anticipated cash income, and your weekly expenditures. See the sample below. You put in your beginning balance in your check book for the first week, add in the first weeks anticipated income, and subtract the week's expenditures. This gives you an anticipated cash balance at the end of week one. Then you put week ones ending balance as the beginning balance for week two. Then add in the anticipated income for week two and subtract the week's expenditures. The balance is the ending balance for week two. Keep doing this for 6 weeks. Once you complete this process, you will be able to look at the bottom figures and determine if you will have a deficit in your cash situation. If you do, then plans need to be made to either increase your income, or lower your expenditures until the weekly balance is at least a zero. The following form can be used to help you with this process.

Week 1 Week 2 Week 3 Week 4 Week 5 Week 6
Beginning Bank Balance 1,000 400 100 -400 -75 100
Add anticipated income 600 750 1,000 1,200 950 1,125
Subtract Cash expenditures 1,200 1,050 1,500 875 775 600
Ending Bank Balance 400 100 -400 -75 100 625

This is a condensed version of what you put together. You will expand your anticipated income to the different sources of income such as accounts receivables, cash sales, business loan, and owner cash advances. Also you will expand your cash expenditures to the different types of expenditures you write checks for. Such as: vendors, payroll, payroll taxes, rent, utilities, bank loans, etc. It is important to break out the different things you write checks for so if there is a cash shortage any week, you then can determine if there are any payments that you can delay. In the above examples we would be short by $ 400 in week three. You need to work on increasing your receivables from past sales, or increase the sales by at least this amount. If this is not possible, then you need to look at the anticipated expenditures for week three and determine if there are any that could be put off for several weeks. You will not be able to put them off until week four because it is at a deficit. You can negotiate with your vendors for a couple of weeks if this is your largest expenditure for the week. As long as you do not do this on a regular basis, there should not be any problems in this negotiating. The worst thing that you can do is not have the money to pay for a bill, not contact the vendor, and send in the check 2 weeks late. Most vendors will agree to this delay if you call them before the bill is due.

By following this method you can alleviate a potential problem, before it happens. This will give you more time to react to adverse situations, which will then certainly reduce your stress in trying to solve the problem at the last minute.

Now for the best part of this cash flow projection. You need to do this on a regular basis, no matter what your cash situation is. If you see that you have excess cash during the weeks ahead, then you can easily determine how much you can put aside in savings to be able to take care of slow business weeks.

Now that you have learned how to do this for the next 6 weeks, you need to update this chart on a regular weekly basis. So far these numbers are projections based on your best guess. When week 1 is finished, you need to plug in REAL figures that happened for that week. Then recalculate the weekly beginning and ending balances. This needs to be done weekly to see if it changes any weeks in the future. Again if you determine there is a deficit in any one week, then you need to make plans to solve it.

When you get to filling in the third weeks actuals, you will need to redo the form for the next 6 weeks. This will allow you to always have 4 weeks advance notice of any potential cash problems. This may seem to be a tedious job, but it will make the difference in solving your cash flow problems or not. I use this on a regular basis for my business, and my personal expenditures. It helps me to keep track of where my expenditures are going, and it will help me to keep better control over them.

Now that you have learned how to do this on a 6 weeks basis, we need to do this for the coming 12 months ! Oh Boy, is he crazy ? It is easier than you think, by using the following form to do these projections. These projections can be very important to help you manage your seasonal ups and downs of your business. Also this is the type of information that a bank will want to see if you are trying to get a loan. You will have to show them the anticipated payments in this monthly cash projection and how it will affect your cash flow. Also it will help you determine how much of a loan or line-of-credit you will need. If you are in a industry where you work on large projects for extended time periods, like the construction trades, this will be a real help in helping you manage the cash flow for the project and the company. You use the same format for all the income and expenditures on the project. Also it can be used by you and the banker to determine how much of a draw you will need weekly to pay for the job. Again the banker will want to see how the loan will be used and how and when the loan will be paid off.

JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC
Beg. Bank Bal.
Add Income
Subtract exp.
Ending Bal.

REMEMBER : MANAGING YOUR CASH FLOW IS MORE IMPORTANT THAN MAKING PROFITS. If you are selling your products or services for a good profit, and you are not keeping on top of your accounts receivables properly, you will not get the necessary income to pay for your bills. This is subject for a later article.

Once you get in the groove of doing these projections all the time, it will become second nature and you will reap valuable benefits from it's use. You will sleep better at night knowing that you have a plan already in place to overcome any problems in your cashflow !! If you are having problems paying all of your bills on time, them Dyanvest Business Services can help you solve this dilemma.

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"The Profit Doctor", is a small business counselor helping business owners resolve ANY issue in their business they want resolved. For more information contact Stephen Anderson at (636) 936-1099