1. Stop Fearing the Cash Flow
Roller Coaster

2. As you know, starting your own business isn’t for
the faint of heart, and you didn’t take the
plunge because you enjoy leisurely amusement
park rides. So stop fearing the roller coaster ups
and downs of cash flow management. Taking
charge of your cash flow isn’t as complicated as
you might expect. Understanding your business
cash flow allows you to plan ahead and gives
you a high comfort level that you will be able to
meet your goals.

3. To achieve business success you must capture
new opportunities, whatever the risks. This is
evident when using cash for expansion or
upgrades. Having cash on hand gives you a
feeling of security, but your business will
stagnate if you fail to deploy cash to grow. The
only obstacle is making sure you have sufficient
funds.

4. Determining Cash Flow
Start by assessing your
company’s cash flow. Many
enterprises have “cash basis”
bookkeeping income is recorded
only when collected. Counting income when you
send an invoice is “accrual basis.” When using
cash basis, expenses are those already paid;
accrual basis records expenses when you’re
billed.

5. Your cash basis profit and loss statement (P&L)
mainly reflects actual cash flow for both income
and expenses. Some adjustment is required for
cash outlays not on the P&L, such as principal
paid on loans or purchases of furniture and
equipment. Also, noncash accounting expenses
such as depreciation are added to profit when
determining cash flow.

6. Your accountant can create a cash flow
statement as part of your monthly financial
reports. This is particularly important if you have
an accrual basis P&L. Accounting software such
as QuickBooks allows printing of cash flow
statements.

7. Evaluating Cash Flow
Improve cash flow by finding ways of reducing
expenses without draining productivity.
Sometimes cutting your own
salary is the best option; a wise
entrepreneur is willing to reduce
his pay in the short term for a
long-term gain.

8. A reasonable calculation of monthly cash flow is
the average over several months. This is the
amount of money your business generates to
solve special problems such as equipment
breakdowns as well as to tackle unforeseen
events such as shipping problems or a late-
paying customer. Calculate the cash you’ll need
each month for these contingencies.

9. Cash flow is also required to reduce debt. You
must keep your borrowing power intact for
those times when you need an immediate loan.
After accounting for emergencies and loan
repayments, the remaining cash flow is available
for new goals.

10. Funding Goals
Next, prioritize objectives for
improving or expanding your
business. Outline costs and
benefits for each goal and
identify best choices. Armed with the cash flow
figures, you now can determine how many
months of operation are required to safely build
the funds needed for a particular task.

11. Goals such as upgrading equipment or adding an
employee are easy to implement if you plan
using cash flow management. Or you can use
the excess cash flow to service additional debt.
That analytical approach is what bankers need in
order to loan you money to modernize and
grow.

12. Randy Bett
www.BetterGroupRealEstate.ca