10 Cash Flow Strategies for a Successful Business by Scott Richards - HTML preview

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Strategy 7: Prepare 3 month cash flow plans

Cash flow is all about timing. A business can be profitable and still have cash flow problems. For example, ABC bought stock for $5,000 in February. They paid for the stock at the end of March. The stock was sold to XYZ for $10,000 in April and they received the money for the sale in June. In April ABC has recorded a profit of $5,000. However, the profit doesn’t hit the bank till two months later.

Prepare a three month cash flow budget. A cash flow budget includes all the expected cash inflows for the month less all the expected outflows for the month. I prefer to prepare 3 month cash flow budgets as opposed to yearly cash flow budgets which I found needed updating within a couple of months of preparing them. Any excess cash should be transferred to a high interest bank account that can be easily accessed when it is needed. See below for an example of a cash flow budget.

Example of a simplified 3 month cash flow budget

July August September Cash Inflows
$10,000 $7,000 $12,000 Sale of Asset $2,000
Total Inflows $10,000 $9,000 $12,000

Cash Outflows
$10,000 $10,000 $7,000
Loan Repayments $1,000 $1,500 $1,500
Total Outflows $11,000 $11,500 $8,500

Net Cash Flow -$1,000 -$2,500 $3,500
Cash Balance at beginning of month $3,000 $2,000 -$500 Cash balance at end of month $2,000 -$500 $3,000