Having the right tools always makes any job easier.  For planning your business’ cash flow, the best tool is a weekly cash flow plan.  Daily cash planning is too tedious, and monthly or annual plans do not give you the visibility and flexibility to see the cash flow potholes in the road ahead of you.

Seasoned entrepreneurs, even Fortune 500 companies, use weekly cash flow planning in their businesses consistently.  Even large, profitable companies have times when there is more cash leaving the company than coming in, and it is critical for them to know how much and when. 

A good weekly cash flow model forecasts three elements: Cash inflow, cash outflow and liquidity.

For cash inflow, you must track two factors: sales and collections. 

More than likely, there is a delay between when you sell something and when the cash actually arrives in your checking account.  You might receive payment in a couple of days, or you might get deposits now and final payments later.  You might sell everything on credit and have different terms, or your clients might have different times when they can pay you.  This timing is critical to know, as it will tell you the difference between selling something and actually having the cash from that sale.  This is important for paying the bills and making payroll.

Cash outflow has two elements: purchases and disbursements. 

Ordering an item and paying for it are two different things.  You must know the seller’s terms and when you run payroll to know when you need cash for your business. Without knowing these factors, you could end up with negative balances in your checking account, and your bank will charge you a large fee. Sometimes, that fee can be more than the check you wrote.  Then, you will have to deal with the bounced check.  Nothing breaks trust with others like a bounced check.

Finally, you must understand your liquidity. 

Without this calculation, you really are not measuring cash flow. All businesses have a time when cash in the bank is tight and the inflows and outflows do not match. Banks and other lenders can provide you with the patch for much of those gaps in the form of loans. Those loans are liquidity. Sometimes, that liquidity comes in the form of a credit card.  Sometimes, liquidity is measured by money you have put in the business in the form of a loan or equity.

To measure all of this activity, you should use a tool called a weekly cash flow model.  A good weekly cash flow plan shows you not only where the cash is coming and going from your business, but also how much cash you have on hand and how much you have left to borrow from a lender or credit cards.

There are many weekly cash flow plan templates available for a cost and for free online.  You should seek out a SCORE Mentor to help you find one of these tools, and learn how to make a weekly cash flow plan part of your good business habits.

About the Author(s)

Ken Yager

Ken Yager is President of Newpoint Advisors Corporation, a turnaround consulting firm dedicated to improving troubled and financially underperforming businesses with revenues of $1-50MM and/or credits of less than $10MM. He has 25 years of executive leadership experience and is a fierce advocate for capital preservation and saving jobs.

President , Newpoint Advisors Corporation
cash flow