Small Business Cash Flow Projection and Cash Management Strategies for the New Year

Part 1 of 2

As your small business begins a new year it is vitally important that you both review the profitability of your business over the past year and identify the improvements that you plan to implement as a part of your overall cash management strategy in order to increase profitability over the next twelve months.

The first step is to review your sources of revenue and expense which provide a comprehensive representation of your cash flow situation over the previous 6 to 12 months. This will be easy if you have already set up your cash flow template and have recorded your actual cash flow data as explained in my blog post: Monthly Updates to your Cash Flow Projection. If you have not already set up your template, you can download the Smart Business Cash Flow Cash Flow Template and read my blog post: Starting a New Cash Flow Projection in order to get started. If you are beginning a new cash flow projection be certain, at a minimum, to enter your actual cash flow data for the previous month.

Once you have captured your actual cash flow data you are ready to begin preparing a cash flow projection for the next 12 months. This process will help you plan intelligently for your cash flow requirements throughout the new year as you take a detailed look at your revenue and expenses. There are many questions to consider as you prepare your cash flow projection; I’ve listed a few to get you started.

Make a Detailed Review of Your Revenue Streams

Take a look at your current line of products and/or services and give consideration to any new offerings you plan to make to customers. Be brutally honest with yourself about what has and has not worked in the past year and take a look at possibilities for making improvements to your gross profit.

1. Gathering Revenue Data for your Review:
   Use your accounting program to run a report that shows the revenue you generated in the past year. (If you don’t already use an accounting program, I highly recommend QuickBooks. It is a great tool for small business owners, regardless of your level of accounting expertise.) Run your Profit and Loss Statement for the previous year to review the different categories of revenue you generated. Finally, run a sales summary report by item or category in order to review each group in more detail. As you review this information, consider each revenue category to determine if it is reasonable to expect that your business will bring in the same amount of revenue for each product and/or service that you provide, or will variables such as the economy, competitors or new technologies impact your expected performance in the coming year.
2. Evaluate the Costs Associated with Offering your Products and/or Services:
   Can you use the information you have recorded in your accounting program to determine the direct costs to the revenue and sales you’ve had for each category? Do you anticipate that your costs for each category will decrease, stay the same or increase over the new year? Can you identify what changes may occur if you increase or decrease sales in one or more categories.
3. Brainstorm Ways to Increase Revenue:
   While evaluating ways to increase the amount of revenue for your business, be sure to consider new revenue streams in addition to improvements you can make to existing product and/or service offerings. Can you add another revenue stream? Should you stop providing products and/or services for those categories that have been less profitable over the last year? Do you need to increase or change your marketing efforts in order to increase sales? Brainstorming always works best when you keep an open mind. Make a list of any ideas that you come up with and then return to it later to further develop your best ideas while crossing off the thoughts that merit less of your attention.

This review of your revenue streams is a great first step toward preparing your overall cash management strategy for the coming year. Be sure to visit Smart Business Cash Flow again next week to read the second half of this post where I will walk you through the final step: making a detailed review of your expenses.