Understanding the fundamentals of your cash flow
Determine how your cash flow relates to the
remainder of your Business Plan
Complete a 12 month cash flow for a new business
Why is it important?
Determines whether or not your business is viable
Determines if you can make enough money in this business for
your personal needs, run the business and make a profit?
To assist in making good business decisions
Your cash flow helps you:
Determine when you can afford to take a draw out of the
Determine whether or not you can pay your bills each month.
Determine how much financing you need to run your business
Determine when you can afford to grow your business through
hiring staff, expanding your location or by purchasing capital
Determines how much money you have in the bank at the end
of each month, it is not your profit.
Cash Flow Forecasting:
… simply taking the words of the business plan and
translating them into numbers.
Actual money that is collected
from sales and actual money that is
paid out for expenses
on a monthly basis.
The Cash Flow Statement
There are three main sections in a cash flow
1. Sources of Cash (Cash Receipts/Revenues)
• Cash revenues
• Equity Investment (Personal or Outside Source)
2. Use of Cash (Expenses or Disbursements)
• Actual Expenses that will be paid in that month
• Start-up Costs
3. Monthly Balance
• You can calculate how much cash you have left at the end
of each month
• Revenue – Disbursements = Cash balance (monthly)
• Add your month end cash balances together to get a
cumulative monthly total
How to Complete a Cash Flow
Use a software spreadsheet
(I.e. - excel)
Do the Disbursement (expense) Section First
(Start-up costs + Projected Monthly Expenses)
This is a projection of the amount of money you will bring into the business each month – this
is not a guess!
Justification of your Revenue & Expenses Projections
How did you come up with the numbers
Include a page of assumptions/footnotes
Be able to explain each account line in your cash flow
Get a second opinion
START-UP CHECK LIST
Advertising Payroll expenses
Bank fees/service charges Permits
Building Personal Contributions
Equipment Professional fees (legal &
Furniture & Fixtures
Repairs & Maintenance
Gas/Hydro hook up fees
Installation fees Signage
Leasehold improvements Training
Lease payments Vehicle
License & Fees Wages
Your disbursements are your monthly expenses.
Consider the following factors when you are
compiling your numbers:
Include all your start-up costs
Promotional Mix – will cause changes in your monthly
expenses and sales.
Straight line approach – Your busy or slow periods should be
reflected in your increasing or decreasing costs for those
periods: avoid straight line/flat line of your expenses. Most of
your costs are rarely the same every month.
Ensure that your estimates are current market value
Fixed expenses – expenses remain the same even if
your business activity changes. Eg. Rent, administrative
Your variable expenses (those costs that are associated
with your sales volume) should reflect increases and
decreases in your sales. Usually, these include inventory,
labour, and selling expenses.
PROJECTING YOUR REVENUE
Your revenue projections are probably the most
critical, yet difficult, aspects of completing an
accurate cash flow statement. Consider the
following factors when putting your numbers
If you have a sales history, go back and use those figures to
help guide your projections.
Your promotional mix activities can have a direct impact on
Seasonality factors may influence the increase or decrease of
Your sales strategy, regarding volume/discount selling or
penetration pricing can change your revenues.
Ensure that your projected growth rate is realistic for a new
business entering the market place.
Monitor the competition- your revenues maybe influenced by
Continuously monitor current market conditions so you may
react to changes in the industry.
Market Research (Trends, Gaps/Needs, Product/service, Target
market, competition, Promotional mix)
•Fashions or styles
•Product changes, style, quality
•Service changes, type, quality
•Sales motivation plans
•Distribution methods used
•Credit policy changes
CALCULATING YOUR REVENUES
Generally, revenue projections are calculated from
sourcing information from many places. Consider
the following methods:
q Market Research
q Maximum Sales
q Industry Projections
q Historical Plus Projections – Monthly basis
FACTORS INFLUENCING YOUR REVENUE COLLECTION
q What percentage of your sales will be cash?
q What percentage of your sales will be by credit? You must
age your receivables to reflect when you actually get your
q Will you take deposits on orders?
Customer Credit Rating
New customers must make a deposit
Amount ($) of the order
Customers payment history with my company
Methods of Revenue Collection
Credit issued to customers
CASH FLOW EXERCISE
Cash in bank - $3,790
Received loan - $5,000
No monthly deficit
Highest REALISTIC cash balance