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Its Not as Hard as it Sounds
By Dave Balch
Are you on the road to success with your business? Are you sure??? One of the best tools to find out where youre going is a cash flow; have you done one yet? If not, you should. Keep reading; its not that complicated!
A cash flow may sound intimidating but it doesnt have to be. It is a way to see out how much money youll be spending and how much money youll be receiving, and when. Youll see when your expenses will exceed your income and vice versa; it is a plan!
A simple cash flow is just a chart with rows and columns. Label the columns 'January', 'February', etc. Down the side show each item of income and expense. Then place the amount of that income or expense in the column for the month that the money will actually be received or spent. The idea is to see how much cash is flowing in and out for each month. (Remember to show expenses as negative numbers and income as positive numbers.)
For example, you plan to set up your office in January, get a mailing list, order inventory, design brochures in February, and do a mailing in March. Make separate lines for each expense: computer, furniture, fax, etc. If you finance anything, show the payment(s) for each month they are paid. Now marketing expenses: printing, envelopes, postage, etc. You may order inventory in January, charge it in February, and pay it in March; put the payment in the March column. Get the idea? If the mailing is going out in March, you may expect some sales in April. Estimate them and put the income into the April column. Total each column to see what the net cash flow is for that month.
For example, January, February, and March will have expenses and no income (negative cash flow). April will have expenses and income; if income is more than expenses, congratulations! You have positive cash flow!
Some tips.
1) Use a spreadsheet computer program if possible; easy to modify and no math errors!
2) Keep it simple; round to the nearest dollar and use a minimum. I show anything that costs $20 or more.
3) Be conservative; over-estimate expenses and under-estimate income.
4) This is a living document and should be updated every day as your estimates become real numbers.
How does this help you?
1) It forces you to thoroughly research costs and schedules.
2) Its a plan! You may see, for example, that you will have to spend $2,000 in January, February, and March before you start getting sales in April. Can you bear it? If not, now is the time to find out. Maybe it will work with a change in schedule.
By keeping an accurate cash flow you can see whats coming and prepare for it accordingly.
If you have a spreadsheet program on your computer, I invite you to download a free sample cash flow from my web site. RIGHT click on the following link, then click either 'Save Target As...' or 'Save Link As...' http://www.TheStayAtHomeCEO.com/Downloads/bbb-cashflow-example.xls If you have trouble downloading, just drop me a note and Ill email it to you! (Mailto: CashFlow@DaveBalch.com) (It is in Microsoft Excel format, but most major spreadsheet programs should be able to convert it.) That will help you get started... good luck!
About the Author:
'Make More Money and Have More Fun' with your small business! Dave will show you how with his FREE newsletter, 'Big Bucks in a Bathrobe' sent by e-mail. Visit http://www.TheStayAtHomeCEO.com to sign-up, for information on speaking services, or for copies of past articles and newsletters. Comments and/or questions are always welcome at 1-800-366-2347 or Dave@DaveBalch.com.
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