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