| You've heard it a million times - cash flow can make | | | | similar business owners, and read as many books or |
| or break a business. Lack of cash flow planning is the | | | | articles you can find on the subject.To improve your |
| reason why many businesses fail. In fact, many | | | | cash flow, you should:1. Complete the first 3 steps. |
| PROFITABLE businesses fail because of cash flow | | | | You have to understand cash flow planning, track |
| issues. Without adequate cash flow, you can't pay | | | | your cash flow, and project your future spending |
| your bills and you can't make plans for your | | | | needs before you can improve your cash flow.2. |
| business.So... what is cash flow planning? Cash flow | | | | Create best and worst case scenarios and create |
| planning is projecting your future cash inflows from | | | | appropriate responses to both scenarios. For |
| sales, services, and loans, and comparing them to | | | | example, if your best case scenario is to increase |
| your future cash flow needs (suppliers, salaries | | | | sales by 50%, how will you use the profits? Will you |
| wages, loan payments, taxes, etc.). The difference | | | | put the profits back into the company by investing in |
| between the two is your net cash flow.Why is cash | | | | new equipment, training, etc.? If your worst case |
| flow planning so important? Cash flow planning can | | | | scenario is a drop in sales by 50%, how will you |
| help you identify problems down the road, and fix | | | | continue to cover your monthly expenses? By |
| them before they occur. Cash flow planning can also | | | | planning for the best and worst case scenarios, you'll |
| help you make decisions such as should I attend that | | | | be ready for any situation.3. When estimating your |
| conference I've wanted to attend, should I buy the | | | | future income, realize that some people will pay late, |
| new computer I've been wanting, or do I need to | | | | and account for that fact in your projection.4. Charge |
| work extra hard this month to avoid a cash flow | | | | what you're worth. Many businesses, especially |
| deficiency next month?The first step in planning your | | | | service professionals, under-charge when they are |
| cash flow is knowing where you spend your money! | | | | first starting out. This is a great way to go out of |
| Solo entrepreneurs need to have a good grip on both | | | | business. Make sure you are charging what you're |
| their personal and business spending, as most solo | | | | worth, and remember you're in business to make |
| entrepreneurs rely on their business income to meet | | | | money, not to give your expertise away for free.5. |
| personal finance goals (i.e., pay the bills!). So, you | | | | Watch your business spending. Focus on the value |
| should track both your personal and your business | | | | the item brings to your business, and avoid lavish |
| spending, although I recommend that you keep them | | | | spending (i.e., do you really need the fastest, newest |
| separate (that's a topic all by itself).What's the best | | | | computer available?).6. Don't hire until necessary. |
| way to track your spending? You can use pen & | | | | Consider using virtual assistants or temporary |
| paper, spreadsheets or a software program. The | | | | employees before hiring permanent employees.7. |
| best method for you is the method that you will | | | | Give incentives for early payment for products and |
| actually use on a regular basis.You should project | | | | services. On the flip side, chase down invoices the |
| your spending for at least the next 12 months so | | | | minute they're late. Charge interest or late fees to |
| that you include annual and other periodic expenses. | | | | encourage timely payments.8. Update your cash flow |
| If you are experiencing a cash flow crisis, you should | | | | regularly. Your cash flow plan will change frequently |
| track & project your cash flow on a weekly basis, | | | | as your business grows. You may want to update |
| instead of monthly.If you are an existing business, | | | | your cash flow plan weekly when you first get |
| you can project your cash flow for the next year by | | | | started, then switch to monthly once you've got a |
| reviewing your expenses for last year. If you are a | | | | good handle on your cash flow.Remember - whether |
| new business, you will need to estimate your start | | | | you are a new or growing business, your cash flow |
| up costs in addition to regular operating | | | | projection can make the difference between success |
| expenses.Start up costs include inventory, legal | | | | and failure.Kristine A. McKinley, CFP, CPA, and founder |
| expenses, advertising, licenses & permits, supplies, | | | | of Beacon Financial Advisors, teaches individuals and |
| and many more costs that you may not have | | | | families how to invest and plan for retirement, |
| thought of. To research startup costs you should | | | | college, and other financial goals. Kristine offers |
| contact your local Small Business Development | | | | financial and tax planning on an hourly, fee-only basis. |
| Center, contact a SCORE counselor, join groups of | | | | |