Key Financial Mastery Issues – The Cashflow Budget - Part 3

By Action Coach Dave Beam

In the last two newsletters, we have looked at two fundamental money mastery concepts, cashflow and breakeven.  Today I want to get even more practical, and address how to make and use a cashflow budget.

I am going to assume that you already agree that it is essential to track and project your cashflow.  If not, give me a call and I will gladly provide a free coaching session – no kidding – and ask you some really interesting questions!!!

So, assuming that you are ready to set up that cashflow budget, where do you start?  Historical information is where I typically have clients begin.  All you really need to have to set up a cashflow budget is your business checkbook register for the last 12 months.  If you literally have a box of receipts and piles of paper, then you need to sort them by month into piles/folders.  YOU CANNOT JUST USE NUMBERS FROM YOUR INCOME STATEMENT (PROFIT/LOSS) TO DO YOUR CASHFLOW STATEMENT.  This statement is based on the actual flow of cash in and out of your bank account.  The P&L does not report items such as owner’s draws, payment on loan principle, and uncollected receivables.  In other words, the PROFIT on a P&L is NOT cash, and is not necessarily available to pay you and pay bills.

What you need to have is money deposited into the account per month, and money going out of the account by month.  If you can break down the major source categories for money coming in, that is even better.  The following is an example of a basic cashflow statement for one month:

DESCRIPTION                      JANUARY                

CASH IN

Beginning Cash:                  $ 10,500
Cash Sales                             $   4,000
Customer Payments          $   1,500
Interest Rec’d:                     $      140
Owner Contribute             $   5,000
Loan from Bank                  $   5,000

Total Receipts                                $ 26,140      

CASH OUT

Inventory                             $  1,400
Operating Expense                        $  1,800
Salary/Payroll                     $  6,500
Equipment Purchase         $  3,000
Payment on Loans             $  2,000       
Income Tax                          $  2,200
Owner Draw                                   $  2,500

Total Disbursements                   $ 19,400

Ending Balance                              $   6,740

Once you have this completed for each month for the past year, then you can predict your CASH IN and CASH OUT for the next 6 months either on a monthly or weekly basis.  Certain outflows happen every month and don’t change.  Other disbursements, such as taxes or fees, may happen quarterly or annually.  Your cash sales and customer collections also need to be anticipated. 

The bottom line is that you must be able to accurately predict your cashflow if you want a stable business and make good financial and business decisions.  Call us if you need some help getting this started and sorted out.