How is Your Cash Flow? Step 2

By Valerie Cardenas

Step 2: Use a Cash Projection  & Management System

Use a system that can project your REAL bank balance into the future for ten or more weeks.  Think of what this could mean for you in the way of peace of mind.  A system that predicts cash balances will give you the insight to know exactly what must be collected in the way of receivables as well as what additional sales must be made.  This system will tell you what fixed and variable expenses will be covered while paying you as the business owner, paying your taxes and more.  Another benefit:  you will be working toward increasing your cash on hand which typically increases profitability.

Using a system would greatly reduce or even eliminate the potential of having to tell vendors and even employees that their paycheck or payment will be delayed.  Not only does this reduce stress, it builds credibility too.   Your credit will improve. Your employees will feel more secure. Plus, you will have cash available to deliver your services and/or products as promised which will lead to more satisfied clients and referrals.

One method I recommend is using an Excel Worksheet that shows weekly incoming and outgoing funds.  Most accountings systems, while they do a good job showing actual cash flows (based on receivables, payables, etc.), do not easily convert to the flexibility desired in cash management projections. Using a system like I suggest here will allow for a variety of real life situations where your accounting system won’t, such as clients who pay early or late.

When using Excel or a similar spreadsheet program, shifts in dollar amounts can be easily adjusted to imitate real life as to when monies will be collected and expenses can be moved forward or backwards depending on current business conditions.