Document Sample

 Understanding the fundamentals of your cash flow statement  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

business.  Determine whether or not you can pay your bills each month.  Determine how much financing you need to run your business properly. Determine when you can afford to grow your business through hiring staff, expanding your location or by purchasing capital equipment.  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 statement:
1. Sources of Cash (Cash Receipts/Revenues) • Cash revenues
• Loans • 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


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 Statement:
Use a software spreadsheet (I.e. - excel) Do the Disbursement (expense) Section First (Start-up costs + Projected Monthly Expenses)

Sales Projections 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

              Advertising Bank fees/service charges Building Equipment Furniture & Fixtures Gas/Hydro hook up fees Insurance Installation fees Inventory Land Leasehold improvements Lease payments License & Fees Office Supplies

   
        

Payroll expenses Permits Personal Contributions Professional fees (legal & accounting) Repairs & Maintenance Rent Security deposits Signage Telephone Travel Training Vehicle Wages

Projecting Disbursements
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.

Projecting Disbursements
 Anticipate problems.  Ensure that your estimates are current market value figures.  Fixed expenses – expenses remain the same even if your business activity changes. Eg. Rent, administrative wages, etc.  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.

 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 together:


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 your revenues  Seasonality factors may influence the increase or decrease of revenues.  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 their activity.  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)  Other factors:

EXTERNAL • Seasons • Holidays • Special Events • Competition, direct • Competition, indirect • Populations changes • Consumer earnings • Family formations • Fashions or styles • Political events

INTERNAL • Product changes, style, quality • Service changes, type, quality • Shortages, production • Promotional efforts • Sales motivation plans • Price changes • Shortages, inventory • Shortages/working capital • Distribution methods used • Credit policy changes • Labour problems

Generally, revenue projections are calculated from sourcing information from many places. Consider the following methods: q q q q Market Research Maximum Sales Industry Projections 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 money.
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
 Cash/Interac  Credit cards  Deposits/Retainers  Credit issued to customers

 Cash in bank - $3,790  Received loan - $5,000  Computer Purchase/lease?  No monthly deficit  Highest REALISTIC cash balance wins!