I’ve been using a cash flow process for all of my clients for years. It helps business owners get a handle on their cash situation – be prepared and get in control. We meet on a weekly basis and go through the 13-Week Cash Flow worksheet. We review results for the prior week and recast the next 13-Weeks. Simple, but very effective.
When you first start using the process – it’s awkward – scary – and most likely inaccurate.
I first started using a 13-Week Cash Flow process with a company I owned – primarily out of fear. We were a small company with 12 employees. Every week, we’d freak out about how to make payroll and pay our bills. The insurance bill in August almost put us out of business. We made the typical mistake of reducing our salaries to reduce payroll. Several times had come out of pocket to cover payroll and vendor bills. We were growing our sales revenue, and we were profitable – but it was very very stressful and not very much fun.
We started using a 13-Week Cash Flow process. A very simple concept tracking inbound and outbound cash on a weekly basis. We started monitoring/tracking/predicting cash ins and outs on a daily basis for the first 4 weeks, then weekly for the other 12 weeks. We’d predict cash receipts and accounts receivable turnover. We’d schedule out all cash disbursement – payroll, rent, telephone, vendors, health insurance, worker’s comp, etc. Again, daily for the 1st 4 weeks, then weekly thereafter. We met every Wednesday – review the previous week’s predictions vs. actual and recast the next 13 Weeks.
First, we were petrified. Cash out was (generally) predictable. Cash in was not. We had big negative cash weeks, but we could see the light at the end. We started focus on profitable and steady sales growth and accounts receivable process and collection.
After time – we were more confident. We focused and improved on our A/R collection – developing a much better and accountable credit process. We smoothed out the sales cycle and production and became much more profit and cash oriented. A better, less stressful, and more valuable business.
I do this now with most of my clients – it not only get business owners focused on their cash flow, but more importantly takes some serious stress out of the business owner’s life.
No matter the size of your business, cash is king. I love George Cloutier’s book ‘Profits Aren’t Everything, They’re the Only Thing’ – but profit isn’t usable until it become cash. Also, when profits take a hit, intelligently using cash let’s you survive and keeps you in business.
If you have a cash flow process, I’d love to hear about it. If you don’t have a process in place – download my template and get started. It takes a month to get in the swing, but this straightforward process will make your life better and less stressful.