Cash Flow Important Analysis

By Shannon Peel

I lack patience, I admit this is one of my most frustrating weaknesses when it
comes to business. I want it all and I want it yesterday! Yes, I am a spoiled
brat, I admit it and since I am I often put the cart before the horse. I jump in
with both feet, risk it all only to wind up in a cash crunch!! Have you ever been
in this situation? Do you have so many ideas and opportunities to market
yourself and your business but cannot afford to do it all? This is me! Full of
ideas, finding all sorts of opportunities, constantly looking for more and then
reality hits, I have to pay for it. My fault is I'm an optimist, I always think I'll sell
enough at one function to pay for the next. When it doesn't happen I end up
depressed for a couple of days, wanting to throw in the towel and quit.

How many times have you wanted to quit? How often do you wonder if a
secure paycheque would be better than the uncertainty of business
ownership? In order to survive the start up phase you have to budget, stay
within budget and understand your cashflow. Easier said than done. I tend to
over estimate my inflow and underestimate my outflow. In order to be
successful you have to be conservative in your estimates for incoming cash
and over estimate the cost of doing business. It would be best to have more
cash at the end of the month than more bills than cash. Start ups take time
and you need a certain amount of cash to ensure your doors will be open
long enough to see a good return.

Start by making a list of your monthly expenses, don't forget what you will
need to take home. Identify every bill, how much each will probably be and
when the money will be due. Next calculate when you are expecting a cash
influx, not when the sale is made but when your client will be giving you a
cheque. How much time does your client have to pay their invoice? 30, 60, or
90 days? Some businesses, like Latasia, enable the business owner to
collect before ordering from the supplier. With most businesses though your
client will order and expect to receive an invoice and pay 30,60, or 90 days
after receipt of item. Your supplier will also give you time to pay for the item,
negotiate similar payment terms with your supplier and client to ensure your
carrying costs are low. If your business carries an inventory that a client would
purchase from the cost of the inventory would be your carrying costs. Your
cash flow analysis will have to reflect this cost and any interest that you will
encure if you bought the inventory with credit. Expect to have a negative cash
flow for awhile, however, with enough cash coming in and a good plan you
will eventually see a positive cash flow.

So how do you get by with a negative cash flow? If you don't have enough
capital saved to keep you going there are a number of options but the two
most accessible are investors and creditors. Both will require complete
business plans and comprehensible presentations to convince them to give
you cash. Creditors will require a monthly payment that has to be added to
your list of expenses and will charge interest which will have to be added to
your capital cost. Investors will require a portion of your profits once you have
some as they will own a piece of your business. Other options are grants
from government agencies for start up businesses and entrepreneurs. Check
with your local Economic Promotion agency, like Community Futures for
help.

Here are some tips to help you keep your cash flow under control:

1) Whenever possible match customer payment terms with your supplier payment terms
2) Ask for deposits on large sales
3) Make bank deposits daily
4) Pay your bills on time
5) Watch inventory and reduce purchasing if stock rises too high
6) Offer discounts to speed the sale of slow moving inventory
7) Set high prices with cash flow in mind, higher margins for fast moving inventory and
smaller margins for slow moving
8) Watch account receivables closly and call when past due quickly
9) Offer credit only to your best customers
10) Watch specific accounts where customers regularly pay late, they may be having
financal problems
11) Use a business operating lines of credit or overdue draft protection to compensate for
seasonal or unplanned ups and downs
12) Keep your costs under control and take advantage of creative marketing strategies
13) Barter services when you can to use inventory or your time in lieu of cash

Tips to Tracking Your Expenses

Get receipts for all business expenses
Keep all expense records for each year together in one safe place
Use a seperate credit card for your business expenses
Set up a basic Financial & Cash Management system
Utilize financial computer programs & Online banking
Get a Small Business Accountant & Book keeper
Keep up your books regularly on a monthly basis

Do you have any tips to add to help other business owners? Please email
your tips to be added.