1. Basic Cash Flow Forecasting Entrepreneurship 101

2. Projected Cash Flow Statement The cash flow statement is the document that explains all of the money going in and out of the company. It will enable you to determine if you have sufficient cash flow to pay your debts and how much profit you can take out of the business for personal use. This is an estimation using the information gathered from competitors and industry profiles. Projections should be optimistic but realistic.

3. How do I pace my payments to make my cash reserves stretch? Slow down your payments Feel out your industry Most suppliers offer 30 days before pymts are due. Take advantage-mail pymts toward the end of the week as mail service is limited on weekends Know the pymt norm in your industry. Delay pymts to the slow end of the accepted norm.

4. S t r e t c h i n g..... Contact all vendors and suppliers Maximize your available credit Explain you are having difficulty and ask to renegotiate your credit terms to extend the time you have to pay them. Most suppliers would rather “float” loyal customers so they don’t lose them forever Use your line of credit to cover travel expenses, office equipment and other supplies. You can hang on to cash for several weeks depending on billing cycles

5. What can I do to kick my collection into higher gear? Bill promptly Establish a deposit policy for works in progress Offer incentives to customers to pay sooner Take advantage of preauthorized payments Adjust as you go Accelerate your receivables Track your past-due accounts PUFF

6. How can I use my lenders to help smooth out my cash flow? Set up cash reserves Synchronize with your cash flow Get more credit Seek out loan refinancing Get a postponement on loan repayment

7. How do I manage my assets and inventory to free up more cash? Lease rather than buy Liquidate some inventory Keep inventories lean Check out discounters and wholesalers Recycle and reuse Do a marketing push Bump up your pricing

8. What can I do to ease cash flow on my business? Work from home If you can afford to lay anyone off, do it. Or, arrange flexible working schedules Accumulate salary

9. Is there anything I can do to inject money into the business to get some cash flow relief? Attract an angel Get rid of unnecessary assets Sell your receivables

10. If I find myself in a good cash position, what should I do with excess cash? Talk to an investment advisor Exercise judgement-don’t lose your cash cushion by making risky investments for short term profit Allocate cash where it will best improve the company’s stability. Pay down higher interest debts/creditors first (credit cards with high interest)

11. How do I prepare a cash flow statement?

12. Prepare a simple statement of general objectives for at least a year These objectives usually should include growth targets in terms of sales, and profits on sales, internal needs such as research and development

13. Prepare a list of detailed assumptions and short-term goals necessary to each of these objectives These will have a direct impact on cash flow. For example, the number of days it takes to collect receivables or anticipating the purchase of new equipment or hiring a new employee.

14. Convert the sales forecast into cash receipts by month and enter them at the top of the cash flow budget To determine the amount to be entered, use your assumption concerning accounts receivable (money in). Don’t forget to carry forward the receivables on hand from last year, if applicable.

15. Enter cash disbursements (money out) These are manufacturing, rental and material costs and are entered month by month on the cash flow budget Ex. Equipment, salary/wages, insurance, equipment, inventory, bank fees, permits and licences, loan repayments

16. Perform arithmetic When you have completed all your disbursement entries (cash outflows), total them and subtract them from the total cash receipts (cash inflows)

17. Keep it simple Don’t get caught up in the details that might discourage you from maintaining monthly financial reports. Instead, prepare a simple budget and develop the discipline of budgeting.

18. Prepare an annual cash flow forecast on one page Format your page to allow a double width column along the left side of the page for the account headings, then side by side vertical columns for each month of the year.

19. State your assumptions Write them down in sentence form Your forecast is based on assumptions that you believe will occur in your business, therefore they should be stated upfront so that you and others (investors, bookkeepers, accountants) who review your forecast will know why these numbers were created.

20. What should I do to make the most out of my cash flow forecasting? Focus on the cash Avoid confusing cash and profit-profit is the amount of money you expect to make if all customers paid on time and if your expenses were spread out evenly over time. Cash is what keeps your business open while you are busy trying to make a profit. You can’t spend profit. You can only spend cash. Keep good financial records If you see trouble on the horizon, take steps to avoid a severe cash crunch-reduce spending etc. Look for significant discrepancies between the planned and actual figures Keep the balance at the end of each period positive, but as small as possible. Allow for uncertainty.

21. Income Statement The income statement reveals sales, expenses and profits (or losses) for a period of time (usually monthly or yearly). While cash flow projections look for when funds will be received and paid out. Income statements can be prepared by entrepreneurs themselves but often they hire a bookkeeper or accountant to prepare the statement. See example

22. Balance Sheet A balance sheet is a snapshot of what a business owns (assets), what it owes (liabilities) and the difference between the two (assets-liabilities=owner’s equity) at a given point in time. Balance sheets tend to follow a specific format See example