Of the many ways to tell if an entrepreneur has a good idea, one of the best is its ability to generate cash flow. Although profit is the difference between income and expenses, cash flow is the difference between incoming and outgoing cash. A cash flow forecast or analysis shows when cash goes out and when cash comes in, on a regular basis.
Why is cash flow king in a business plan? Dr. James Stancill, professor of entrepreneurial studies at the Marshall School of Business at the University of Southern California, compares it to gasoline for a car.
Stephen Spinelli Jr., vice provost for entrepreneurship and global management at Babson College in Wellesley, Mass. who advises small and medium-size companies, recommends having at least enough cash to cover one purchasing cycle. "Then if a key customer has to cut back on orders," says Spinelli, "or another unexpected disruption occurs, there is time to recover."
Knowing cash flow helps prevent running out of cash while waiting to be able to pay for expenses by enabling more accurate planning. Cash flow also shows sustainability and growth potential. You and investors can get a better idea for the future of the business.
Monthly cash flow is common because most billing cycles are monthly. Some businesses will call for different cycles. Often retail operations such as stores and restaurants will use point of sales software programs with their computerized cash registers to monitor daily and weekly cash flow.
Most sources recommend using an Excel spreadsheet to organize and tabulate the cash flow data.
Sources for Free Excel Templates for Cash Flow Forecasts and Analysis:
Toolkit.com includes a free Excel template for cash flow analysis and projection as well as other financial templates. The website is user friendly yet professional and the spread sheet is simplified and basic. It might be too basic, as it is set up by default for a six month cash flow forecast. The more Excel savvy user can change that.
Planware.org also offers free Excel spreadsheet templates for cash flow analysis, and includes more advanced versions for sale as well. Perhaps easier to use than Toolkit.com, Planware has larger titles and more icons to guide the user.
Score.org, the Service Corps of Retired Executives in partnership with the U.S. Small Business Administration, offers excellent free resources on their website, including twelve month cash flow spreadsheet templates.
Obviously, professional help and guidance is always recommended. Having your information together and organized as much as possible at the onset will save you time and money whether you are managing your cash flow by yourself or working with professional assistance.
For more information on cash flow analysis and forecasting for the entrepreneur, visit any of the websites listed or read more at the Babson College or USC Marshall School of Business Web sites, as they ranked highest for entrepreneurial studies by the U.S. News (www.usnews.com), the source considered by most to be the most credible school ranking authority.
Written for w2wlink.com by Jean Lewis.
More Resources:
The Small BusinessToolkit, is a complimentary, online resource with an array of new features providing expert advice for starting, growing or maintaining a business. The tools include daily expert advice by Jim Blasingame, the #1 ranked small business expert on the Internet. A blog called Deborah’s Biz Basics sponsored by BuzGate.org provides a forum for women to discuss business issues and get advice. A small business video learning series is available covering topics such as incorporating, bookkeeping, managing credit and avoiding burnout. The toolkit was introduced in 2007 in the U.S. for Asian, Black, Hispanic, Native American and Women-owned businesses, and contains thousands of how-to articles, free Web software, press release distribution offerings and directory listing, financial calculators, business readiness quizzes, HR and more. Most of the toolkit is now available in Spanish. The new SME Toolkit was developed by the International Finance Corporation (IFC) of the World Bank and IBM, along with other partners.
w2wlink Discussion and Thought Provoking Questions: 1. How soon do you see your idea generating cash flow on a regular basis? 2. How soon do you see your idea generating positive cash flow on a regular basis? 3. Does a monthly cash flow analysis seem to fit your area, or do you think a different frequency is more appropriate?
Jean Lewis,
has edited and written for consumer Web sites and publications reaching nearly 50 million people. Her credits include writing and editing online and print articles, sales and training materials, marketing collateral, and advertising and PR for conusmer companies including BeautiControl, a Tupperware subsidiary's publications to women ages 20s through 50s, the WHO Foundation, Women Helping Others, MCG Magazine, Los Angeles and Seasonal Living Guide for Sam’s Club, a retailing subsidiary of Wal-Mart. Her career also includes working and living in Canada and Japan. Jean is well regarded for her market-research based approach to managing story development enabling consistently original, relevant and timely content.
