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