The Business Edge Blog

September 11, 2012

7 Keys to Success for Business Owners – Part 6 – Cash Flow Forecast

How come my CPA tells me I’m profitable, but there’s no money in the bank? How do I know if we can dig our way out of this hole? How can I handle all this credit card debt? There’s those darn numbers again! I thought we covered this already 🙂

Some clients that meet with me think they are about to call it quits because there is not enough money in their business.  The key is to help clients understand where the money goes, analyze Return on Investment for their dollars, find ways to reduce expenses, and hold their hand every step of the way.  The first step to get out of a hole is to stop digging.  It’s simple – not but easy!

I also have clients that want to grow!  What they are looking for is the money to expand.  It can be expensive to borrow the money.  What if they can find the money they need in their own business?

The focus is to develop a short-term cash forecast for the next 90 days.  Don’t think this is only for businesses that are in pain.  Developing a Cash Flow Forecast is good for all businesses.  It will sound a lot like developing a household budget so it will not feel like a foreign language to you.

Start with what you know.  What are the expenses you know will come due during the next 90 days?  Rent?  Utilities?  Payroll?  An annual insurance renewal?  If you don’t know the exact amounts, look at your historical expenses and make an educated guess.  You don’ t need an elaborate software package, a spreadsheet will do to develop the list of items and your estimates and the actuals as the bills come in.

Be diligent.  Enter all your expenses, yes, all of them.  Find out where all the money goes.  Typically there are expenses that have been added over time that may no longer be providing a Return On Investment that they originally did.

Once you’re tracking the expenses, get critical.  Look at everything.

Look at your utilities.  The bigger the bill, the greater the potential reward for making small changes in your usage.  Do you have the option of working with a reseller for your electric or gas?  Check into programs that are offered in your area.  Does your utility offer free energy audits?  Have you had one?

Take a critical look at the expenses for maintenance of your equipment.  Can new equipment end up being less expensive and more productive?  Look at anything you lease and recognize when the lease is up.  If there are more productive options available for less, it may be worth paying a small exit fee to upgrade early. There may be other expenses that you have not had re-quoted for quite some time where you can find cost savings.

It does take some time.  I promise the updated knowledge about your current expenses and the review of expenses that you have taken for granted is well worth the time you spend.  Some of my clients have found more than enough money to pay off their debts over time, or ways to update their equipment and get more productive, and some found the money they needed for growth without increasing their debt load.

What did you find?  Share your findings with the rest of us!  Questions?  Ask away….

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I look forward to hearing from you.  Join the discussion and post your thoughts below.

Until next time – Remember to mind your business!

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