So how far did you get in setting up your cash flow projection? As I mentioned in my previous blog post, this does take some time to set up, but this is time well spent. Once you have your Cash Flow Template in place, be sure to be faithful to the continual process of reviewing your old data, updating your template with new data, and reviewing the resulting, more complete data once again. Remember this will help you look forward into the coming months to see if you will have enough cash available in your business to cover all of your expenses. Your Cash Flow Template can also inform your decisions and help you plan to have enough cash left over to carry you through those times when the monthly cash flow is less than optimal.
When you complete your initial review of your Cash Flow Template, pay special attention to the Revenue and Sales categories. Do they summarize the information as you want to track it and does it make sense to you to have your Revenue and Sales data broken up into the categories that you have created? It is certainly ok to include each category that is listed on your Profit and Loss Statement if you want to be able to track and review your data with that level of detail. There is no “right” answer, so set up your Cash Flow Template in the way that makes the most sense to you!
Now let’s look forward to the next 6 (or 12) months on your Cash Flow Projection. We want to look ahead and try to predict what your sales will be over the approaching months. Is your business one where you have a steady stream of revenue, or are you a seasonal type of business? Every business has some ups and downs to their monthly sales. Look back over the time frame that you have already recorded in your Cash Flow Template to see what your sales were. For example, if you are creating a Cash Flow Projection for January 1st through June 30th, review what your actual sales were doing that same time frame during the previous year. This is great information to have on its own, but let’s look at some additional questions that will add value to this exercise:
- Have you added or discontinued any products, services or any other income-generating business activity since originally set upon your Cash Flow Template?
- Will you be adding or discontinuing any products, services or any other income-generating business activity in the next 6 months?
- Have you experienced any changes in the way your customers have been buying?
- Are you planning any advertising or promotional events in the approaching months?
All of these questions (and you may have more to add) are important to consider as you estimate your revenue on your Cash Flow Projection. Be realistic with these estimates in order to create an accurate planning tool.
Remember, this is a living document. Your spreadsheet should change as needed and be updated regularly; don’t succumb to the temptation to complete it and then file it away.
If you are not the person responsible for answering these questions then you need to sit down with that person and solicit his or her feedback. This person may be the owner of the business or the sales manager. You may even have to talk to multiple people to get all of the information you need. Give some thought to who will be able to accurately relate what lies in store for the business in the immediate future.
At this point in the process, you should have a Cash Flow Projection where the first month includes actual figures and the bottom line matches the balance in your reconciled check register. Additionally, the 2nd thru 6th columns should contain revenue projections based on the information you calculated by answering the questions above.