cash flow

Part of the I don’t know what I don’t know series

Everyone wants more cash, and a business is no different. Cash pays your employees, buys raw materials and products that you sell, and pays for the building you’re in. You need to understand how much cash you have, when it’s coming in, and when you need to spend it.

Here’s a few cash flow hints:

  1. Create a Cash Flow Forecast. Every day you look at how much cash you have in the bank. You do a quick calculation in your head about how much payroll is going to be, etc. But your memory isn’t as good as you think. Do an actual forecast – on a spreadsheet – over 13 weeks. The cash you have in your bank isn’t the cash you will have in 4 weeks or what you will need in 10 weeks. If you don’t plan for it, you might be in for a surprise.
  2. What is the trend of your available cash? You can chart the cash that you’ve had available on a monthly or annual basis. Then draw a trend line across the available cash. Is the line flat, or is it tilted? If it’s tilted up, then you’re in great shape, because your cash is growing. If it’s tilted down, you have less cash, and you might be speeding towards potential problems.
  3. Who’s paying you late? A detailed cash flow forecast shows when each invoice is going to be paid. As you match your projections against the actual cash you have, any differences should be reviewed. Reviewing what invoices didn’t get paid will lead you to another view of which customers are holding their cash rather than sending it to you.
  4. What should I do with the excess? You’re building cash monthly. How do you use the extra money to build your business? If you don’t know how much cash you’re going to need, you can’t effectively plan for those expenditures. Don’t make a significant investment in your company just to find that a small downturn could create a shortage in a hurry. Your cash flow forecast will tell you what you can and can’t do and still maintain your safety net.

Sure, cash is king. But if you don’t plan for how much you’re going to need, then you might find some surprises down the road. A little planning goes a long way. Keep your cash availability top of mind, and you can build your business with confidence.

Larry Chester

Founder and President at CFO Simplified, LLC
Larry Chester served as a corporate CFO for 25 years before starting CFO Simplified in 2007.Having worked in manufacturing and service companies of all sizes, he now leads a team of part time CFOs serving small to mid-sized companies throughout the Midwest.They serve the needs of business owners, providing them with Cash Flow Forecasting, Profitability Improvement and Financial Statement Clarity.Since the company’s inception, they have implemented changes that have improved operations, cash flow and profitability to their many clients.
Larry Chester

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