How to Manage your Cash Flow

. . . to Survive, when you Start your Business,
until you get the big Customer or Funded.

from Entrepreneur 04/14 enhanced by Peter/CXO Wiz4biz 5/15

Cash is King when it comes to the financial management of a Startup or Small Business. The lag between the time you have to pay your suppliers & employees and the time you collect from your customers is the problem. The solution is called Cash Flow management. At its simplest, Cash Flow Mgt means: 1) delaying outlays of cash as long as possible while 2) encouraging anyone who owes you money to pay it as rapidly as possible. Sounds simple, but it isnt.

Measuring Cash Flow. Prepare Cash Flow projections for next month, next quarter and next year, if you can. An accurate Cash Flow projection can alert you to trouble – well before it strikes. Understand that Cash Flow plans are not glimpses into the future. They’re educated guesses that balance a number of factors, including your customers’ Payment Histories, your own thoroughness at identifying Upcoming Expenditures, and your Vendors’ Patience. Don’t assume – without justification – that Receivables will continue coming in at the same rate they have recently, and that 1) Payables can be extended as far as they have in the past, 2) you have included all of the Expenses (such as capital improvements, loan interest & principal payments), and 3) that you have accounted for Seasonal Sales Fluctuations.

Start your Cash Flow projection by adding Cash on-hand at the beginning of the period with other cash to be received from various sources. In the process, you will wind up gathering information from your sales people, service representatives, collections, credit workers & your finance department. In all cases, you’ll be asking the same question: “How much cash in the form of customer payments, interest earnings, service fees, partial collections of bad debts, & other sources are we going to get in, and when?

Cash Flow projections, Part 2 is the detailed knowledge of amounts & dates of upcoming cash outlays. That means not only knowing when each penny will be spent, but on what. Create a form and have a Line Item on your CF Projection form for every significant outlay, including rent, inventory (when purchased for cash), salaries & wages, sales & other taxes withheld or payable, benefits paid, equipment purchased for cash, professional fees, utilities, office supplies, debt payments, advertising, vehicle & equipment maintenance & fuel, and cash dividends. As un-desireable as it is for a business owner to prepare CF Projections, it’s one of the most important things one can do. CF Projections are under-rated, but rank next to Business Plans, Mission & Vision among things a business must do to plan for the future to succeed.

[ Improving Receivables, Managing Payables, Surviving Shortfalls in Premium Content]