Day 14. Planning your cashflow.

We’ve worked out our budgets and considered where the start up money will come from so now we just need to make sure we have cash available when we need it. More businesses fail because they run out of cash than fail because they are unprofitable. Profits are important but you need cash to keep your money making venture afloat.

Completing your cashflow forecast

Download your cashflow template and get planning.

Download your cashflow template and get planning.

Predicting your cashflow is not an exact science, whilst there are some entirely predictable incomings and outgoings others are less easy to forecast. One of the things that I’ve found in 21 years in business is that money goes out sooner than we would like and comes in later than we wanted. The challenge is managing the bit in the middle! Today I want you to have your best shot at predicting what your cashflow will be for your money making venture. Click here to download a template to help.

Completing your forecast:

  • start by changing the dates to reflect the period you are covering including the months at the top of each column
  • next fill in your known, fixed expenditure e.g. if you pay a fixed amount for electricity each month put that amount in to the relevant boxes
  • now take a look at your project plan and your budget and enter your budgeted figures for marketing etc. in the months you expect to spend the money
  • if you need to buy raw materials, how much will you need to buy and when? Remember this expense may be spread over several months as and when you need more supplies
  • now calculate when you can expect to receive the income from sales and in what amounts. How long is the gap from buying raw materials to receiving payment for finished goods? Be realistic. If you buy your raw materials in month 1, make them into product in month 2, even if you sell direct you may not receive payment until month 3 and then you probably won’t sell all that you have produced in the first month. It may therefore take you four to six months to cover your investment in raw materials. This can be even longer if you are selling via a third party, especially large companies who are notorious for having 60 or even 90 day terms to payment of invoices.
  • check that you have forecast your income and expenditure in all areas

If you are using the template without adding any rows or columns your totals should calculate automatically, are there any minus figures? These are the months when you run out of cash.

Dealing with a cash shortfall

If you are going to run out of cash there are a number of options for you to consider:

  • be less ambitious with your sales targets in the early stages so you can reduce your raw materials costs and, possibly, your labour costs
  • go for slower growth
  • increase your prices
  • offer customers an early payment discount
  • take a bigger deposit
  • invest more money in the beginning
  • ask your bank for an overdraft
  • review other expenses and either cut them down or delay them until you have the money
  • negotiate a trade account with your suppliers to give you longer to pay for your raw materials
  • if you are selling to large companies who are slow paying you could consider factoring where you sell the invoice to a factor company. Typically you will receive payment for around 80% of the invoice amount with the factoring company retaining the other 20% when your customer eventually pays the bill.

The one thing you must not do is bury your head in the sand! If you run out of money you may be trading illegally and you will certainly spend your time fending off creditors. Your bank is less likely to help you if they think you are not on top of your finances but they may well be helpful if you go to them with a well organised cashflow forecast when you ask for an overdraft or loan.

ACTION: Complete your cashflow forecast and amend your plans if you have a problem with a lack of cash.

RECOMMENDATION: The Training Pack uses www.kashflow.com to manage it’s finances. This is a user friendly book keeping and accounting package designed for use by the small business owner with no accountancy training but also accountant friendly. It is a cloud based package so accessible any time any where. If you would like to try it you can sign up here. You will save £1 per month and I will make a little bit of money too! I am not an affiliate for many products but this is one I am very happy to recommend, it makes managing my numbers so easy.

Next steps, should you choose to take them…

  1. Share any insights or recommendations in the comments section here.
  2. Join the conversation on Facebook to gain support from the 21 Day Challenge community (we’ll be looking at some of the benefits of social media later in the challenge but for now being active on this page and on Facebook can help boost the way people can find you on the Internet.)
  3. Tweet this ‘I’m working on my cashflow forecast as part of @Glenda_S’s money making challenge. #21DMMC
  4. Join us tomorrow to when we’ll be starting work on our marketing plan.
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About glendashawley

Owner at the Training Pack and author of Founded after 40: How to start a business when you haven't got time to waste.

Posted on December 4, 2013, in Managing Finance, Money Making and tagged , , , . Bookmark the permalink. 1 Comment.

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