| You've heard it a million times - cash can make or | | | | Small Business Development Center, contact a |
| break a business. Lack of cash flow planning is the | | | | SCORE counselor, join groups of similar business |
| reason why many businesses fail. In fact, many | | | | owners, and read as many books or articles you can |
| PROFITABLE businesses fail because of cash flow | | | | find on the subject. |
| issues. Without adequate cash, you can't pay your bills | | | | To improve your cash flow, you should: |
| and you can't make plans for your business. | | | | 1. Complete the first 3 steps. You have to understand |
| So... what is cash flow planning? Cash flow planning is | | | | cash flow planning, track your cash flow, and project |
| projecting your future cash inflows from sales, | | | | your future spending needs before you can improve |
| services, and loans, and comparing them to your future | | | | your cash flow. |
| cash needs (suppliers, salaries/wages, loan payments, | | | | 2. Create best and worst case scenarios and create |
| taxes, etc.). The difference between the two is your | | | | appropriate responses to both scenarios. For example, |
| net cash flow. | | | | if your best case scenario is to increase sales by 50%, |
| Why is cash flow planning so important? Cash flow | | | | how will you use the profits? Will you put the profits |
| planning can help you identify problems down the road, | | | | back into the company by investing in new equipment, |
| and fix them before they occur. It can also help you | | | | training, etc.? If your worst case scenario is a drop in |
| make decisions such as should I attend that | | | | sales by 50%, how will you continue to cover your |
| conference I've wanted to attend, should I buy the new | | | | monthly expenses? By planning for the best and worst |
| computer I've been wanting, or do I need to work | | | | case scenarios, you'll be ready for any situation. |
| extra hard this month to avoid a cash deficiency next | | | | 3. When estimating your future income, realize that |
| month? | | | | some people will pay late, and account for that fact in |
| The first step in planning your cash flow is knowing | | | | your projection. |
| where you spend your money! Solo entrepreneurs | | | | 4. Charge what you're worth. Many businesses, |
| need to have a good grip on both their personal and | | | | especially service professionals, under-charge when |
| business spending, as most solo entrepreneurs rely on | | | | they are first starting out. This is a great way to go out |
| their business income to meet personal finance goals | | | | of business. Make sure you are charging what you're |
| (i.e., pay the bills!). So, you should track both your | | | | worth, and remember you're in business to make |
| personal and your business spending, although I | | | | money, not to give your expertise away for free. |
| recommend that you keep them separate (that's a | | | | 5. Watch your business spending. Focus on the value |
| topic all by itself). | | | | the item brings to your business, and avoid lavish |
| What's the best way to track your spending? You can | | | | spending (i.e., do you really need the fastest, newest |
| use pen & paper, spreadsheets or a software | | | | computer available?). |
| program. The best method for you is the method that | | | | 6. Don't hire until necessary. Consider using virtual |
| you will actually use on a regular basis. | | | | assistants or temporary employees before hiring |
| You should project your spending for at least the next | | | | permanent employees. |
| 12 months so that you include annual and other periodic | | | | 7. Give incentives for early payment for products and |
| expenses. If you are experiencing a cash flow crisis, | | | | services. On the flip side, chase down invoices the |
| you should track & project your cash flow on a | | | | minute they're late. Charge interest or late fees to |
| weekly basis, instead of monthly. | | | | encourage timely payments. |
| If you are an existing business, you can project your | | | | 8. Update your projection regularly. Your cash flow |
| cash flow for the next year by reviewing your | | | | plan will change frequently as your business grows. |
| expenses for last year. If you are a new business, you | | | | You may want to update it weekly when you first get |
| will need to estimate your start up costs in addition to | | | | started, then switch to monthly once you've got a |
| regular operating expenses. | | | | good handle on your cash. |
| Start up costs include inventory, legal expenses, | | | | Remember - whether you are a new or growing |
| advertising, licenses & permits, supplies, and many | | | | business, your cash flow projection can make the |
| more costs that you may not have thought of. To | | | | difference between success and failure. |
| research startup costs you should contact your local | | | | |