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Cash Flow Forecasting: Why You Need One Now


Cash Flow Forecasting: Why You Need One Now
By Michelle Murcia, Founder + CEO Book+Street

Cash Flow is the most important way to monitor your ongoing business operations. Because we’re in such uncertain times right now, companies — startups and small businesses especially — should focus on the next 30, 60 and 90 days and look at their Cash Flow over that time period, rather than looking much further ahead. So how do you as a startup founder create a Cash Flow Forecast and actually use it to your advantage? Let’s start with the basics: 

What is a Cash Flow Forecast? 

The Cash Flow Forecast helps your small business assess how much cash you have coming in (from sales, fundraising or investors) vs. how much you are spending (on things like rent/lease, payroll, equipment or sales/marketing), and track those amounts over time. Your Cash Flow Forecast helps you understand how much runway you have before you need to raise more money, if you can afford to hire any new talent or make a big purchase like buying new equipment or leasing a new office. We all know the saying, “cash is king” but it’s especially true for startups and even more true in an uncertain market like the one we’re currently in. Having cash on hand is so critical for startups looking to stay steady as they navigate financial hardship. 

So how do you create a Cash Flow Forecast? We’ll show you. 

Take inventory of your current cash position

Step one in Cash Flow Forecasting is assessing your current cash. Seems obvious, but you’ll find this in your current bank statement/s. Whatever this number is, put it as your opening balance. If you use PayPal or Venmo, include the balances of those as well.  Any account from which you make payments or receive payments through would count.

Create your forecast 

You don’t have to be an Excel wizard to create a Cash Flow Forecasting spreadsheet, you just need a basic understanding of Excel and a little bit of time (we estimate 1hour/week). You don’t need to use Quickbooks or anything too fancy for this, but if you have the tech, all the better, because they have built in tools to help you get started. If not, you can find great samples of Cash Flow Forecasts with a quick Google search. Just remember: a Cash Flow Forecast is not the same thing as a Statement of Cashflows.

List all of your cash inflows 

Start by creating a list of all of your cash inflows – that is: expected cash that will come in. This could be income from sales made (recurring or planned), funding from investors, or loans, accounts receivables. List them out and total them up before moving on to the next step. Do the same for the next 60 and 90 day increments. Of course you’ll be speculating a little bit, but account for what you know and use your best judgement for what you don’t. 

List all of your cash outflows 

After you’re done with the inflows, list all of your cash outflows. This includes rent, manufacturing costs, salaries, taxes, loan payments, accounts payable, etc… and repeat it for the 60 and 90 day increments. Think about if you want to make a hire what the impact would be to your outflows, and use your forecast to help you plan for that (or decide you don’t have the cash quite yet to do it). 

Consider “what ifs?” 

There’s no time like the present to think about the “what ifs.” What if (as we’re currently experiencing) there’s an economic downturn? What if your current manufacturing processes change (or grow)? What if you can’t purchase the goods you need to generate sales?  You can’t plan for all the “what if’s” in your business, but it can’t hurt to ask yourself the questions before they happen. 

Research and take advantage of Small Business Administration Loans available to you

It goes without saying these are unprecedented times we’re experiencing. There’s absolutely no shame or harm in researching what small business loans are available to you as a result of the current stimulus package.  

Be sure to visit the SBA.gov website for more information on the current grant and loan opportunities available now and keep an eye out for relief that may come from a second shutdown and new government. 

Stil have questions? Reach out to our team and set up your free 30 minute consultation

 

Elio

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