Purchasing Resources for Cash Flow Analysis

Calculating Your Business Cash Flow

Keep tabs on the money fueling your business
By Mark Ingebretsen, Creative Project Manager Stonehand Publishing Cash flow is a measure of the amount of money your company makes and spends during a given period and is frequently used as a barometer of your company's health and worth. Accurately calculating your company's cash flow is vital in determining if your company has enough money to operate. Understanding your cash flow lets you evaluate:

1. Borrowing needs
2. The timing of new hires and major purchases
3. The timing of payables
4. Product pricing and the amount of credit granted to suppliers
5. The need to make strategic cost-reduction decisions

 

Use a cash-flow modeling spreadsheet template

Accuracy is critical with cash-flow forecasting. Thus, a tested spreadsheet template will contain formulas that will work. The best spreadsheet templates offer easy-to-understand graphics.
Try: Develop cash-flow projections using Grand Valley State University's downloadable Excel spreadsheet. Study up on Excel's collaborative, charting and other advanced features.

Perform "what if" analysis

Find break-even points for each of your product or service lines for each of your departments. Create three or more projections detailing best-case, worst-case and most likely scenarios based on the current economic situation and your company's growth goals.
Try: Use Microsoft's training resources to perform "what if" analyses using Excel. QuickBooks users can contact professional advisors through the software vendor's website who are specially trained to customize the popular accounting software package.

Assemble financial records and employee forecasts

Set aside a multi-day period when the key people within your company can formulate their own departmental cash-flow projections, then add these forecasts to your own.
Try: Acquaint employees unfamiliar with cash-flow forecasting with MindTool's tutorial, which will walk them through the process of forecasting cash flow properly.

Maintain a record of cash flow forecasts to improve your accuracy over time

Create multi-year charts comparing cash-flow projections to actual year-end results.
Try: QuickBooks' Premier Edition embeds forecasting functions within the popular accounting software suite, and shows you how your company's numbers compare to norms within 120 different industries. As your business grows, so will the complexity of its cash-flow projecting spreadsheets. Browse available software packages at Capterra's Business Performance Management Software Directory

• Improve your cash flow by keeping cash in an interest-bearing account.
• Bill your clients regularly to keep cash flow coming in.
• Keep bankers and other creditors informed of your company's cash-flow projections.
• Assign values to forecasting spreadsheet inputs to help rank their importance. Will it be critical for your company to receive timely payments from key customers during the spring, for example? If so, focus your collection efforts when needed.