For a small business, cash flow is critical. For a small business in the wedding industry, the seasonality of cash coming out and cash going out can make or break you. You can create sales targets and an expense budget, but if you haven’t thought about cash flow, you could find yourself in a pinch.
What is cash flow?
Cash flow is exactly what it sounds like. Cash flowing into your business; cash flowing out of your business. For obvious reasons, you need to have more coming in than out.
Cash flows in when…
- you sell something (sales, income)
- you take on a loan or debt (you take on a loan for $15k; that $15k is cash available to you)
Cash flows out when…
- you pay for something (costs, expenses)
- you pay off a loan or debt
- you buy something BIG (assets: equipment, furniture, etc.)
Create a cash flow plan…
The cash flow plan puts the ins and outs together so that you can a) be intentional with your finances, and b) see the changes that your money may go thru in the upcoming year. YOU DECIDE what you think your cash will do with assumptions that you’ve ascertained.
The cash flow plan can be set up in different ways. (One is a very technical way that shows cash flow from operations, cash flow from investments, cash flow from financing. This is all accounting mumbo-jumbo that can be confusing.)
This is HOW I SET UP A CASH FLOW PLAN for small businesses:
1) Show cash that I expect to come into my business each month:
Think about all of the ways that cash will flow in (mostly from sales) EACH month in 2013. When are those peak times? When are they slow times? Use your sales quota that we did last week.
2) Show cash that I expect to go out of my business each month:
Think about all the ways that cash will flow out of your business EACH month in 2013. Think of all your expenses that you have. (Use the expense budget that we did yesterday.) What are the biggest months for expenses? What are the slowest months? Think of any debt payments that you make. Think of any assets you want to purchase in 2013.
3) Look at the net cash flow for each month (inflow minus outflow)… do you have more cash going out than coming in for some months? How will you prepare for that? Are you working towards building a reserve so that you can withstand the slow income months?
If you aren’t sure how to set this up (or don’t want the hassle) use our Cash Flow Plan download here:
So… what do you see? Do you have healthy cash flow in 2013?
We wish you a super happy and prosperous NEW YEAR!!!! SEE YOU IN 2013!!!!
Come back on Thursday next week… we’ll have all of these posts bundled into a sweet, little, easy-peasy download to work thru the entire 2013 Action Plan!