How do you project your cash flow?

Each day we are asking a new business owner, “Do you know how much cash you will have in the bank on this Friday?  Next Friday?  Each Friday for the next six weeks?”  Owners can almost never give an answer.  Cash is the lifeblood of your company.  Intelligent decisions require information and the two most important financial documents in your business are your budget and your cash flow.  Your budget tells you what you can afford; your cash flow tells you when you can afford it.  Most owners don’t really know what they can afford or when; they are forced to guess or run their business by “gut feel.”  Fortunately most owners have a pretty good “gut feel” due to having been there for years and working long hours.  Unfortunately this method creates a situation where they can never leave.  I have had owners tell me that it would take 15 years before someone could take their place—about then I remind them that you can become a brain surgeon in eight years and that running this business is not twice as tough as brain surgery!  In a way though they are right—it would be next to impossible for someone else to learn how to run the business the way that they are running it.

Your budget is a financial plan that produces a predetermined, desirable result.  Your cash flow forecast is your pulse.  You need a pulse to stay alive and you need to stay alive to accomplish your desired result. You must be able to make business decisions based upon profit rather than upon cash flow and to do so requires the use of these two tools.  If you don’t have them—call us now!

The Fremont Group has developed a simple, six-week cash flow forecasting tool and makes it available to all small business owners.  We provide it during our Annual Business Physical or if you send us an email we will send it over to you.  It requires ten minutes of work each week to develop a full, one-page report of your projected cash balances for the next six weeks.  The real benefit of this is your ability to make proactive adjustments in your activities so that you remain in a positive cash position.

To find out more about cash flow forecasting, log in (first register if you have not—it is free) and do a search for “cash flow” or “budget.”  You will find numerous other posts on these topics.