Cash flow is income minus expenses.

Period.

Managing cash flow means having enough income to meet expenses, with enough left over to build a cash reserve for growth and unexpected occurrences. If you are not currently using a cash flow projection sheet, start one NOW.

This simple tool is invaluable in planning your day-to-day activities as they relate to the growth of your business.

This simple spreadsheet can be created on your computer or on a columnar pad purchased from your office supply store.

Start by filling in the top row with the months to be projected. Next, list the cash on hand and fixed expenses, those expenses that typically stay the same from month-to-month. Total the fixed expenses.

The remainder of the column is projected or estimated based on your past records and future plans. Project one complete month before moving onto the next month.

Variable expenses include all business expenses that fluctuate from month-to-month based on usage or purchases.

A good way to estimate the first months variable expenses is to use the actual costs for the immediate past month. Future months may be projected by estimating expected increase or decrease in usage or purchases.

These estimates may change, of course. A cash flow projection is a working, evolving analysis of what you expect to happen in your business versus actual results.

Projected income is based on expected sales. You may already have sales pending that will close in the next months, or contracts that produce an established amount monthly. Start with these figures, then estimate additional income based on your expected sales efforts.

Another way to project sales growth is to apply a percentage calculation that you're willing to strive for. On the sample sheet, a 25% increase was applied to each months projected income. Your sales efforts may be more conservative or more aggressive.

After estimating total income for the month, add the cash on hand and subtract the total expenses to get your cash reserve. Notice that these figures also become the projected cash on hand for the following month.

Continue to project these figures for at least six months to get a feel for how your business will grow.

Using The Cash Flow Projection

Your projected income is basically a sales goal to strive for each month. Review the projections often to motivate you to reaching your goals.

Your cash flow projection is also a spending plan, enabling you to evaluate which expenses are on target, which are excessive, and when you can plan to give yourself a raise.

Costs that are seasonal or based on inventory depletion will fluctuate greatly from month-to-month. Your projection sheet shows at a glance when to expect the added expense, enabling you to avoid the shortfall.

As month end draws near, evaluate your projected income versus actual income, and if your falling short of the goal, look for places to nudge those figures higher – jobs that can be completed and invoiced quickly, invoices that can be collected with a phone call or reminder note, sales that can be quickly closed.

Basic Cash Flow Questions

These fundamental cash flow questions apply to all businesses. Use cash projections to help answer them.

1. What is the maximum feasible level of business you can achieve?

2. How much will it cost to run the business when its in full operation?

3. How long will it take for the business to become profitable and provide a return on your investment?

Bill It Now!

Never consider job complete until the invoice goes out and the check comes in. Invoice every job immediately.

Print the due date on your invoices. Develop a standard process for collecting overdue invoices (reminder note, uncle, etc.).

Keep a running tally of all your invoices for the month and check them off as the checks arrive. For a small business, sales quotas can be counted when the sale is made, the contracts signed, but income is counted when the check is received.

The easiest time to collect on an invoice is when the customer has just received the goods and smiling. Later, when the "newness" wears off, paying the voice is not nearly as pleasant. Make it easy on your customers by collecting voices as soon as possible.

Pay Your Debts Wisely

Some companies offer discounts for early payment. Be aware of all discounts available and take them. These small sums add up on the plus side of your ledger.

Other companies invoke penalties when an invoice is paid late. Be aware of these penalties and make it a habit to pay on time.

Use your cash flow projection to determine when you have the cash reserve to buy necessary equipment or supplies. If you must purchase an item before you have surplus cash, negotiate a 90 day payment. This is often workable and generally carries no finance charges.