Issue link: https://read.dmtmag.com/i/705621
30 • august 2016 • world fence news Watching your money and developing a company cash flow forecasting spreadsheet by tom luby, president, profit builders international Having the cash on hand to oper- ate your business on a day-to-day ba- sis, paying your employees and paying your bills on time is a critical part of business survival. Even some of the best and strongest companies from time to time find themselves short on cash and in a bit of a "cash crunch." One of the best financial tools to see your company through a tempo- rary financial downturn and a shortage of cash on hand is a cash management tool called a cash flow forecasting spreadsheet. A cash shortage is not the only reason to develop a cash flow forecast spreadsheet. If your company is expe- riencing rapid cash reserve increases, the cash flow forecast can be used to predict future cash positions and in- fluence investment policies. A cash flow forecast is a projec- tion of cash funds that you anticipate receiving on the one hand, and distrib- uting on the other hand, throughout the course of a given time span, with the anticipated cash position of your company at specific times during the period being projected. Although cash flow forecasts may be developed for any period of time, it is suggested that you forecast and monitor cash flow on a weekly basis for the next 12 to 16 weeks. Shorter periods of time may not provide sufficient time to positively impact your temporary cash shortage situation and longer periods of time tend to become less accurate and more difficult to predict. Also, using longer periods of time for cash flow forecasting tend to weaken discipline and resolve and promote the mentality of "kicking the cash can down the road" and delaying the inevitable. It's kind of like what the U.S. gov- ernment is doing with our ever-grow- ing national debt. This is not what cash flow fore- casting is intended to do. Also, the cash flow forecast is generally done on a weekly basis, but in time it may be decided to go to biweekly forecasts, if consistency has been established. Objective The goal of cash flow forecasting is to determine deficiencies or excess- es in cash flow that may occur in the business during the periods for which the projection is prepared. In the event deficiencies are re- vealed in cash flow, financial plans must be altered, either to provide more cash through aggressive collec- tions, loans, lines of credit, increased sales, and/or delaying payments as necessary, until a proper cash balance is reached. If excessive cash is revealed, it may indicate idle money that could be put to use. Here the objective is to develop a plan which, if followed, will provide a well-managed flow of cash. If excess cash is available, the owner can then decide how best to uti- lize that excess, be it investing in new equipment, paying down longstanding debt, investing in real estate or other financial instruments. The projection becomes more useful when the estimated informa- tion can be compared with actual data as it becomes available. Utilize the cash flow projection in setting new goals and planning op- erations for more profit. Whether you have an excess of cash or a shortage, the cash flow management tool be- comes more useful and more accu- rate with time. At first your cash flow guesses of future events may be inac- curate, but the longer you use the cash flow chart, the more accurate your "guesstimates" become. In summary, the cash position at the end of each period should be ade- quate to meet the cash requirements of the following period. If there is too little cash, then cash paid out must be reduced temporarily or cash must be injected into the busi- ness from the line of credit. Format A sample cash flow projection form is a spreadsheet that provides a systematic method of recording esti- mated cash receipts and expenditures. The entries that need to be considered would be all normal expenses, i.e., rent, payroll, insurance, vendor pay- ments, etc. that you would normally deal with over a three to four month period. These entries could even come directly from your annual P&L state- ment. Next, you would need to estimate the anticipated sales volumes from all of your company's profit centers, like chain link fence sales, vinyl fence sales, gate operator sales, fence rent- als, etc.