Cash is paramount for running a business. Here are five easy rules for creating a positive cash flow plan for your company. In most business models, cash is king, and ensuring that we have enough cash to fund inventory and operations is critical to our success. Successfully managing, and understanding, cash flow is not a skill reserved for MBAs. Every business owner should understand their cash flow.
- Project monthly sales (and curb your optimism). When projecting sales for cash flow purposes, don't be the optimist. Use worst-case-scenario estimated sales figures or historical monthly averages.
- Remember Account Receivables. Cash and credit card sales are available for ongoing operations immediately, but sales with terms can take 30, 60, or even 180 days or more to convert to cash.
- Consolidate predictables (Fixed Costs). Rent, payroll, and telephone service - things that are consistent and predictable. Consolidate Fixed Costs.
- Adjust for growth. Have the capital required to grow.
- Plan for the unforeseen. Prepare for the known unknowns and unknown unknowns. Whether the plan is status quo or growth, any cash flow forecast must include a contingency plan or “slush fund” to account for potential new opportunities or challenges.