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:
- Borrowing needs
- The timing of new hires and major purchases
- The timing of payables
- Product pricing and the amount of credit granted to suppliers
- The need to make strategic cost-reduction decisions
Action Steps
The best contacts and resources to help you get it done
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.I recommend: Develop cash-flow projections using the Small Business Administration's downloadable Excel spreadsheet. Additional cash flow spreadsheets can be found at Michigan's Small Business and Technology Development Center. 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.I recommend: Use Microsoft's training resources to perform "what if" analyses using Excel. QuickBooks users can contact professional advisors through the software vendor's Web site 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.I recommend: Acquaint employees unfamiliar with cash-flow forecasting with this MasterCard International's free downloadable guide available at Startup Journal.
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.I recommend: QuickBooks Premier Editions 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
Tips & Tactics
Helpful advice for making the most of this Guide
- 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.
the Cash Flow Analysis page at Business.com
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