| Cash Flow Projections, also called Pro Forma's, predict | | | | make an educated guess. Big corporations always do |
| the income and expenses for your business in the | | | | pro forma's when launching a new business or a new |
| future. Expenses are probably pretty straightforward, | | | | product, based upon historical data of their business |
| based upon historical expenses and the projects and | | | | and other similar businesses, their business and |
| marketing campaigns you plan to run in the future. The | | | | marketing plan, and, frankly, educated guess. You can |
| struggle for most small business owners is in predicting | | | | do this too. |
| income -- but with these tools, you should be able to | | | | Review your marketing and sales funnel or your sales |
| create projections that will be useful to your business. | | | | process. If you get a certain number of visitors to your |
| Your cash flow projections should be made on a | | | | website or store, place a certain number of phone |
| month to month basis, but you may also want to | | | | calls, or schedule a certain number of free |
| prepare quarter-by-quarter reports. I find for my | | | | consultations, what is the typical percentage of those |
| business, the month-to-month income and expenses | | | | people who convert to be on your list, or convert to |
| fluctuate greatly, but quarterly, trends are obvious. | | | | buy your product or service? How much is the |
| 1. Expenses | | | | average sale? How long does it usually take to get the |
| First, get expenses out of your way. Using both your | | | | money? If you are not sure, make an educated guess, |
| historical expense figures and your business & | | | | based upon what is typical in your industry. Guessing is |
| marketing plan (specifying expenses for the future), | | | | okay, because you will be testing and refining your |
| determine your average monthly overhead, and how | | | | guesses each week at your weekly Money Meeting. |
| that overhead is spread out over months. For | | | | Based upon how many visitors or calls or meetings |
| example, some overhead is the same from month to | | | | you are having this week, how many of those usually |
| month, like your internet access bill, your virtual | | | | convert, and how long it usually takes to get the |
| assistant retainer, or your rent. Even overhead that | | | | money, you can then make an educated guess on |
| fluctuates from month to month, like long distance and | | | | how much income you will have next week, next |
| office supplies, has a monthly average. | | | | month, and next quarter. |
| Other overhead only occurs occasionally, like your | | | | Similarly, based upon your marketing and promotion |
| Holiday card mailing, trade shows, and insurance bills. | | | | plans, how many visitors or calls or meetings do you |
| For those expenses, record when the payments will | | | | predict you will have next week or next month, |
| become due in a particular month, since you will need | | | | resulting in sales the month or two after that, etc. |
| to set aside funds ahead of time to pay for those | | | | You may want to create two or three scenarios -- a |
| larger-than-normal bills. You may want to set aside | | | | worst case, an average, and a best case -- especially |
| money for these bills every month in a separate | | | | if you do not have good historical data for your |
| account, so when the bill arrives you already have the | | | | business. |
| cash on hand. For instance, if you have a $2000 | | | | 3. Test Your Guess |
| once-a-year payment, set aside $166.67 each month in | | | | The secret in using these educated guess numbers is |
| your business savings account to pay the bill. | | | | that they must be adjusted constantly, based upon |
| Once you have your expense reports done you can | | | | new information. Each week, look at your Promotion & |
| determine your true monthly overhead, factoring in the | | | | Sales Report and your Cash Flow Projections, to see |
| monthly amount that needs to be set aside to pay for | | | | if you are on track for what you had planned. Not only |
| occasional expenses. This is your break-even point -- if | | | | can you make adjustments to your Projections based |
| your business is still young and not yet profitable, this | | | | upon real information, but you can decide to increase |
| may be what you are shooting for each month, at a | | | | your promotion, make more phone calls, or change |
| minimum. | | | | your sales page on your website, when the downturn |
| 2. Income | | | | first starts to occur. By keeping on top of your data |
| Now you must attempt to predict your income. Yes, | | | | every week, you will never be surprised at the end of |
| your business may be brand new or you are launching | | | | the month. |
| a new product with no historical data. But you can still | | | | |