“Number one; cash is king.” – Jack Welch
Alberta’s economy is in an ocean of hurt. At times like these, cash is the life preserver that will keep your business’s head above water.
Last week we talked about why you should have a 13-week cash flow forecast. Now let’s build the thing and dig deeper into what it can do for you!
Structure
The beauty in this 13-week forecast is its simplicity. It forces you to focus on cash. Cash is the lifeblood of our businesses, but we frankly don’t think about it enough. No matter how big and complex your business is, knowing how much cash you have (and will have) in the bank is typically a simple affair.
Break out the spreadsheets, graph paper, or whiteboard. The horizontal X-axis is your “Reporting Period.” Typically these are weeks, so give yourself 13 columns.
The vertical y-axis should be labeled “Reporting Categories.” It’s your call how deep (or shallow) you want to go. For expenses, usually, a few categories (labour/ cost of goods/ utilities) will account for 80% or more.
Revenue is simpler. When you designate those rows, make sure to account for A/R and (if it applies) the % of bad debts you tend to have. A lot of cash is lost in either negotiating for late payments to be made or losing them entirely.
Remember: this is about cash. It’s not about how much you invoice or the exciting new contract around the corner. This is cash in the bank.
Fill in the 13 weekly columns. Inevitably, you’ll be speculating by the end. These are your weekly forecasts.
You can go deeper into expenses if you want by looking at the 3,5,10% of your revenue line items. These add up fast, and often contain a lot of the fat you could trim. We spend a lot of time wondering how to trim labour, but often travel, marketing, and office supplies get forgotten about. Transparency is the first step towards flexing those Process Improvement muscles.
Rinse and repeat for each fiscal quarter, using more tabs along the bottom. Download our template.
Visibility Matters
As the weeks creep by, replace your forecasted numbers with actual ones. Keep it brutally honest.
You’re building a mirror that will allow you to stare back at your business’s cash health. It’s about making expenditures visible. When you’re forced to look at a business activity as cash out of pocket, you’re more likely to interrogate why you need it and to potentially cut it.
Remember: this is an organic document; build it with the intention of altering it. As the weeks creep on, edit it in real time and anticipate the impacts of that change as far forward as you realistically can.
If you get the numbers wrong, don’t let your pride get in the way of changing whatever needs to be changed.
Embrace Difficulty
If your business is struggling, this could be a hard exercise. If it’s only now becoming evident that it’s struggling, it could be even harder. And that’s the point.
If you’re bleeding cash, now is the time to stop it. If you’re not, now is the time to know for sure.
