Cash Flow Forecasting You Can
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Properly forecasting cash flow is essential to running your business successfully. Poor cash management always leads to trouble. Fortunately, cash flow projections are easily prepared - when you know how.
This page uses a real-life example whose principles are pretty universal so you should find it useful. If you need help in applying the concepts to your particular business, feel free to contact me with no obligation.
1. Winning The Cash Flow Game
Following is a typical cash flow forecast template for a small business (annual sales of $12,000,000). This particular one was done on a monthly basis, but small changes in the program can produce quarterly or yearly forecasts. Copy the table below or contact me for help in setting up a customized spreadsheet to help your company win the cash flow game.
Assumptions:
- Cash receipts from sales occur as follows:
- 25% in 1st month after billing
- 50% in 2nd month after billing
- 25% in 3rd month after billing
- Other cash receipts are non-sales collected in the same month.
- Direct costs are 0.912 of sales and disbursed 25% in the month incurred and 75% in the month following.
- Indirect and other costs and disbursed in the month incurred.
- Cash receipts and disbursements for September and October are actual values.
- Cash receipts and disbursements for November are best guesses.
Working with your own live spreadsheet, you can easily change the assumptions and do various "what-ifs" to develop action plans to improve your cash flow picture.
2. Losing Big-Time In Cash Flow
For almost all businesses, there are three levels of forecasting, taking you from losing to winning the game.
- Based Only On Billings (This is nothing but crisis management.) Cash flow forecasts based only on billings do nothing more than lead management from one crisis to the next. This is really losing the cash flow game. As bad as it is, some company accountants like this simple billings-only forecast because they can work with actual figures and not have to make any real projections or estimates.
- Based Only On Billings And Bookings (This is better, but not good enough.) The example forecast above is based on both billings and booked orders, business in hand in other words. This forecast is still almost useless because it doesn't take sales projections into account. On the bright side, it is much better than a forecast based only on billings, so it DOES represent a positive step toward winning the cash flow game.
- Based On Billings, Bookings And Sales Projections (This is real cash flow management.) To win the cash flow game, you need to take projected sales into account in the forecast. This is extremely important because it allows you to assess the effect on cash flow of various sales scenarios. It is a common mistake for many executives to believe that greater sales will affect cash flow positively. Usually the reverse is true.
Self-test... which one of the three scenarios do you identify with? If it's not the third one, you could be facing a serious problem. You need to take action quickly to protect your company's cash.
3. Attending To Cash Flow Basics
Proper cash flow forecasting is a must. But it's also a must to do some basic cash-flow-generating things. If you miss the basics, there's no amount of forecasting that will help you!
Fortunately, there's an easy way to master the basics. And that is simply to follow all the advice in the special report "Cash Flow Kick Start" by Gabrielle Fontaine. It's a snap to do and you'll love it!
Gabrielle Fontaine is a Professional Bookkeeper and Certified QuickBooks® ProAdvisor who was absolutely determined to do more than just squeak by, like so many self-employed professionals.
Privy to clients' books, she could see, especially at tax time, how so many other small business owners were struggling just as she was. They just couldn't seem to do more than scrape by.
Even after many years in business, the vast majority of these bright, self-employed people still had long, dry periods when they just snuck through the poverty line by the skin of their teeth.
Over the years, Gabrielle discovered and developed effective methods to maximize the cash that was already available within her own business. She learned how to tap into income that was just sitting there waiting for her to access it!
And now those concrete practical methods that she implemented time and again to prove their worth are in one easy-to-read and easy-to-use book - Cash Flow Kick Start - that sells for only $9!
Note. The $9 price tag is already unbelievably low, but the report actually shows you how to get that $9 back, not just once, but many times over! It's cash flow mangement at its very best!
4. Going Way Beyond Ordinary
The forecast is just one management tool in the cash flow game. See our Profit Sensitivity Analysis for another one that is especially useful at times when businesses are worried about declining profits.
By applying rigorous value engineering principles to financial statements, this profit sensitivity analysis is an essential bottom line tool that instantly exposes a company's strengths and weaknesses.
Use this straightforward financial analysis and little-known (and little-used) business tool to help determine where to apply limited resources to maximize the profitability of your enterprise.
So the drill is to first get the basics right, then do your cash flow forecasting the right way, then maximize your bottom line with the profit sensitivity analysis. Need some help? Read on!
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5. Getting A Free Helping Hand
There's nothing worse than having a problem and not knowing what to do about it. It's especially worrisome if it's a financial problem that affects family and employees as well as yourself.
Since this page is about cash flow forecasting, that's the focus of the solutions we present and of the help we offer here.
You know that if you go to a consultant who's a professional in the field, one of the first things s/he will ask you to do is to describe your problem in writing and provide figures to work with.
Hello! Don Coggan here, with a very special offer for you. I will personally review your cash flow forecasting story if you allow us to publish the story with our comments.So to get help with your cash flow forecasting issues, all you need to do is tell me your story. Why should you do it? Simple! Telling your story is a terrific exercise in planning.
You might also discover that just by writing things down (with a sprinkling of inspiration from the information on our pages), the solution will reveal itself to you. Problem solved!
The key thing though is that this is an exercise where you learn by doing, which isn't a new concept by any means.
Confucius said... I hear and I forget. I see and I remember. I do and I understand. |  |
So, are you ready to subject your cash flow forecasting plan to the test? Then let's get started! Tell YOUR story! Go to the contact page and start writing!
My experience tells us that the principles embodied in the example are pretty universal, so you should find it useful. If you need help in applying the ideas to your specific business, feel free to contact me with no obligation.
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