Manage Your Cash Flow – Part III

CashFlowIn our previous postings we discussed how to manage the inflow and outflow of cash in your business. In our final part of the series, we will discuss how to forecast your cash flow on a regular basis. Why is this important? No one wants surprises. As a business owner you need to know that you will have enough cash to pay salaries or unexpected expenses.

Many our clients have found that a 13 week (3 month) cash flow model is a good way to manage their cash flow and it goes out far enough to take corrective action.

One of the ways to prepare a cash flow is to use a spreadsheet. You begin with cash on hand, add cash expected from outstanding invoices, work in progress and new business expected over the next 13 weeks. From this total you subtract cash requirements for completing work in process, anticipated costs and overhead and accounts payable.

The cash flow is updated every week. The estimated cash flow at the end of the week becomes the cash on hand anticipated at the beginning of the following week. This is a rolling model that always shows a 13 week flow.

By monitoring and forecasting your cash flow on an ongoing basis, you can detect potential shortfalls in a timely fashion. And with the 13 week cash flow model, you will have enough warning of potential cash shortfalls.

As we discussed previously, if you foresee a cash shortfall you can do the following: accelerate your cash inflows by offering early pay discounts and delay your cash outflows to the extent possible by taking advantage of supplier terms or by choosing suppliers with more flexible payment terms.

Let us know if we can help you set up a cash flow for your business or if we can help you monitor your cash flow.