Are you able to see a stable future with your cash needs?
In this month’s Navigator, we continue our focus on honing financial skills, this time with a dive into cashflow projections. We hope you will find this information useful. Let us know what you think!
Eagle Corporate Advisors
GPS: Financial –The Importance of Cashflow Forecasting
The management of cashflow is an all-too-common stressor on business owners, yet the problem can be mostly resolved with time invested in planning.
A business owner we spoke with recently shared his monthly rundown:
“My three biggest clients pay mid-month, and their checks will basically cover payroll. I know the approximate date each month that the other clients pay us, and I plug those each in as rent and other bills that are due. Because this is all done in my head it’s a juggling act – and that gets unnerving. But I get through it, sometimes fixing things in the nick of time.”
Sound familiar? If this is how you operate, it is time to make a change to provide you with confidence and comfort.
To plan and manage your business with peace of mind, you actually have to chart out your cashflow. That’s right, YOU MUST ACTIVELY TRACK IT (outside of checking your bank balance)!
Create Your Cashflow
You must start to track your cashflow. Luckily, you have the benefit of historical data to help you map out your cashflow levels in a standard month. Use it! Look at your financial records and bank statements to categorize common expenses. Remember, you are not merely recreating your income statement or profit & loss. Don’t forget to add in cash requirements for any debt payments since those will not show up on income statements.
If cash is typically short on a day-to-day basis, it may be wise to start off tracking cash on a weekly basis instead of a monthly basis. You know when your bills are due, and you know roughly how much they will be based on your historical data.
Once you have historical data in a template, it is ready to be built upon.
Turn the History into a Projection
Using your newly created template, it is time to switch your mindset to forward thinking. Begin with recurring expenses like rent; then, add in any one-off expenditures that you foresee in the coming periods, along with any special or one-time receipts that you expect.
Three to four periods of projections allow you to see low points in the future where cash might be tight. The best is to have a rolling 13 weeks of projection into the future. This allows plenty of time to create plans to obtain additional cash through additional income, debt, or equity. Projecting out potential storms helps you to look ahead with confidence, comfort, and peace of mind.
Apply Your Projection
Cashflow projections are helpful with daily operations, projects and other one-off expenses.
One of our clients was recently presented a last-minute opportunity to exhibit at a trade show. Based on up-to-date cashflow projections, they were able to determine they could afford attending, including the extra costs of purchasing custom promotional items. They made the decision to attend with confidence and invested in growth without waiting.
Financial decision-making is much easier when you use the tools available to provide accurate information.
You may discover that you like using a more sophisticated tool. We can help with understanding, creating, or finding the right tool for your business
Peace of Mind, Even When Disaster Strikes
When we begin working with a business owner, our first step is determining the “de-risking” measures needed to solidify the company’s foundation. We initiate this challenging conversation by asking important questions that tie into a group of challenges we call “The Five D’s”: Disagreement, Divorce, Disability, Distress and Death.
The crucial plans and documents that need to be put in place (or updated) include many of the following:
- Buy-sell agreements
- Business valuation procedures
- Cashflow forecasts
- Contingency plan documents
- Leadership succession plans
- Operating agreements, partners’ agreements or shareholders’ agreements
- Property, disability and life insurances
- Trust & estate plans
The Five D’s are the unfortunate realities of life that can blindside you, adversely impacting many lives when the right plans are not in place ahead of time.
If it’s been years since you’ve sought the guidance of a trusted mentor to ensure you’re headed toward what’s important in the long run, it’s time to determine if you need to get back on course.
Eagle Corporate Advisors works diligently with you to improve and transform all fundamental areas of your business. We work to increase your bottom line to enhance the value of your business, along with its appeal to potential buyers, partners and investors.
Our in-depth approach will help you face change head-on to make informed business decisions while keeping your future goals at the forefront.
We are Your Value Advisors.