Back to Cash

It’s ironic when a business is surprised that they need $80K to pay sales tax.

I am just starting to work with a new client, and one the first practices that I start for most companies is to create a simple cash flow forecast and process, to help avoid surprises like this.

It’s amazing to me how few business owners forecast actual cash needs.  They shoot from the hip and are surprised when that sales tax deadline looms.  How did they not know that sales tax is due on the 20th?  Bad or sloppy planning, that’s how.  Sometimes we need to focus on the fundamentals.  In business, predicting cash needs is a basic fundamental.

For this client, we did a very simple estimate of cash receipts and cash disbursements for the next three months.  We looked at accounts receivable and estimated weekly internet sales.  We forecasted payroll, due dates for medical and insurance premiums, all deadlines for debt payments, vendor payments, telephone, utilities, etc. (See a basic template in my resource section.)  The first pass of the worksheet took about an hour.   This was a fundamental first step.

This client was tracking cash transactions daily with an involved spreadsheet noting activity in three cash accounts and their working capital lines.  The spreadsheet was prepared daily and the controller and owner would pontificate on it constantly.  It was mostly historical though, with very little accuracy for the forward-looking three months.

This was the main problem. They weren’t predicting future cash needs very effectively at all.  I see this a lot—the need to look further down the road.  Things get hazier as we look out, but the first few weeks and months should be much clearer.

We simplified their spreadsheet by changing the perspective to a horizontal look (vs. vertical).  We changed their daily tracking to tracking by week.  (By day was too granular for this company – they got too caught up in the detail.)

We created a weekly update process that will take some time to prepare, but it’s done once and formally reviewed in a structured way.

Over time, accuracy will improve, but in a couple of days of work, the owner already has a much better view of the future now.

If you’re not using a basic cash flow forecast process for your business, and you’re constantly stressed about cash, start today! Not sure how? Contact me for help!


Image by Deedster from Pixabay