Do you forecast cash flows?

Here is a bold statement: your business would run much better if you did a better job managing your cash flow!

I have the great advantage of working with some really successful business owners.  When I take on a new client, one of my first goals is to introduce cash flow forecasting best practices.  This is an excel spreadsheet (email me if you want a copy of the Excel template) that your accountant/bookkeeper should present to you every week.  My clients, even the very successful ones, are shocked at how much this one page document helps them run their business.

If you are growing your business – or plan to grow your business – every business decision you make will affect your cash flow.  And in growth mode, almost every one of the decisions will affect your cash flow in a negative way.  Take a look at this table:

Activity Affect on Cash Comments
Land a large, new client Negative While this is counter intuitive, You will generally be spending money (cash) prior to collecting on your receivable.  Results are a hit to cash.
Move into more office space Huge negative Don’t do this unless you have to.  There are multiple cash flow hits here.  Higher rent, tenant improvements, loss of productivity.
Purchase better machines Negative New and shiny always looks better than rusted and dented.  But this will cost you cash.  Can you increase capacity or retrofit your current equipment and save money?
Take out a new loan Negative and positive Taking out a loan does help your cash flow dollar for dollar.  But as time progresses, it will be a negative with interest payments and principal reductions.
Add a new management position. Huge negative Management positions do not ever help with cash flow.  More warehouse staff increases production.  More sales people increase sales.  Your revenue divided by FTE’s (full time equivilants) will hurt your cash flow with the addition of new managers.


This table is just an example.  I can go on and on but you get the point.  And here is the real take away from this post:  make good business decisions which means understand what the cash flow implications of those decisions are.

Here is a screen print of the basic cash flow template I bring to my clients.  We customize the template a little for each business – but we try not to add very many new rows.


























Please note that this is a forecast.  It is a prediction of what the business checkbook balance will be in the future.  In this example, the bank balance will be negative 4,055 at the end of week three.  If you, the business owner, know this is likely you can affect change today that will not allow this to happen.  Call your A/R specialist and have him collect receivables faster.  Call your purchasing specialist and have her cut back on purchases.  Call your inventory manager and have him process all defective inventory returns and get credits for this.

You can solve any problem you have if it is presented to you.  And we all know that the more time we have to solve a problem (the opposite of crisis), the easier it is to handle and the more likely your efforts will be successful.  There are not many business problems worse than a cash flow crisis.  If you use this tool, you will not be caught.  If your thought is “how did this happen?” then you are not getting good information from your accounting staff.

Have a great day.

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