Cash Flow And How It Affects Your Business Plan

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Cash Flow And How It Affects Your Business Plan

By: Eddie Lamb

Your cash flow is the lifeblood of your business. You can be billing thousands of dollars each month but if it takes your clients 30-90 days to pay, your cash flow can be non-existent - particularly if you have expenses to pay while you're waiting for clients to pay you.

Your cash flow, and your cash flow analysis, is your number one tool to keeping your business solvent and thriving. Fortunately, the basic elements of your cash flow are really straightforward. The equation is:

Starting cash
Cash in
Cash out
Ending cash.

Pretty easy, right. It's like balancing your checkbook. If you keep a spending plan or budget, these numbers are tracked for you on a weekly or monthly basis. Good cash flow management enables you to predict the state of your future finances, and daily management makes it easy. It makes creating a business plan, and modifying your plan, possible. It enables you to answer the question "What will your cash balance be six months from now?"

Here are just a few tips to help you stay on top of your cash flow:

1 Deposit all checks/payments you receive immediately.
2 Invoice frequently and change your payment terms to 15 or 30 days.
3 Collect receivables within 60 days.
4 Experts also advise using prenumbered cash receipts and checks for easier management.
5 Lastly, pay your own accounts slowly. Of course you don't want to be penalized for late payments, but push it as far as you legitimately can.

When you know what your past, present, and future cash balance is, you can create an accurate business plan. Let's take a look at two aspects of a business plan and how your knowing cash flow will help you:

Marketing Plan. Marketing generally costs money. When you know exactly how much money you have now and can accurately predict how much you'll have six months from now, you can with relative certainty create a marketing schedule that meets your needs. For example, let's say you want to produce a brochure this month, have a direct mail campaign the following month and then release a new product and a corresponding promotional campaign. Knowing your cash flow can help you get a head start on planning these campaigns because you will know what you have to spend.

Operational costs. Many of the costs of doing business are fixed costs. However, choosing to outsource a project or several tasks means you need to be able to pay a contract employee, and paying employees means you need to have a solid grasp of your cash flow. If you don't it could mean being unable to pay someone for a job they've been hired to do.

As you can see, knowing your cash flow has a significant impact not only on your ability to do business, but also on your ability to plan your business. And as any business person knows, you don't just wing it in business, you need a plan.

Article Source: http://www.find-investment-advice.com

Eddie Lamb owns LiveMortgageFree.com a website devoted to helping homeowners, first time buyers or tenants. You'll get your own exclusive access to the program and bonuses that will get you on the road to living Mortgage Free. For more information visit: LiveMortgageFree

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