Managing Your Cash Flow

Knowing how much is coming into and going out of your business will help you keep your business afloat.
Magazine Contributor
4 min read

This story appears in the August 2002 issue of Teen Startups. Subscribe »

(YoungBiz) - For those of you who are heading back to the classroom in a few weeks, here's a pop quiz to get you back in the groove. Which of the following two business challenges is most likely to stop a good idea in its tracks?

A) Raising the cash to get started
B) Managing that cash

If you chose B, consider yourself in the know when it comes to business savvy. Even if you have the world's greatest idea, your business can fail if you run out of money to pay the bills.

Next Step
How might a cash-flow statement help you to better manage your business? Check out these down-to-earth tips on cash-flow management--with a sample spreadsheet to boot.

Case in point: Ever heard of Continental Computer? We didn't think so. Ever heard of Compaq? That's what we thought.

Back in the days when companies first began to compete with computer giant IBM, Continental Computer had the superior idea, but Compaq had the bigger bank roll. When push came to shove, Compaq survived.

So how do you capture the best of both worlds--act on your brilliant idea and ensure that your business is the Compaq of the story? That's where the cash-flow forecast--which will help you predict the amount of money that will be coming into and flowing out of your business--comes into play.

Charting a Path
Using a cash-flow statement from the get-go can get your business started down the right path. For 'trep Adam J. Welti of Plainview, Minnesota, it was the difference between opening a pet store--his original plan--and a pet-sitting service.

Because he loves animals, Welti thought it would be fun to start a pet shop. However, a quick check of the costs to open and operate a store sent him back to the drawing board for a more feasible pet-oriented venture.

Since the beginning of AJ's Pet Sitting Service, Welti's cash-flow statement has helped him take the steps to ensure his new business would maintain its positive cash flow. You can do the same, following these steps:

1. Know what to expect. Welti's cash-flow forecast provided a rough estimate of how much his business could expect in receipts each month, how much its cash disbursements might be, and how much cash would be on hand at the end of each month. For Welti, it was priceless. "It helped me see how much money I'd have," he says.

While a pet-sitting business would definitely be less expensive to operate than a pet shop, he knew there would be start-up costs as well as monthly operating expenses. Welti paid his start-up costs with his savings, but only after his cash-flow forecast gave him an idea of how and when he might recover his costs.

2. Predict and plan for the slow times. Once the business was up and running, Welti used cash-flow forecasts to predict slow seasons when he would need to be more careful with money. "Usually during the winter months it slows down," he says.

Welti spends about $50 to $60 each month, mostly on advertising, fuel to drive to clients' homes, and stamps for promotional materials. Knowing much of his monthly disbursements remain the same regardless of his receipts, Welti uses his cash-flow projections to make sure he will have funds to cover the bills.

"If my expenses are going to be more than my cash coming in," says Welti, "then I may use my savings to pay for things or try to cut back." One way he cuts costs is by temporarily suspending his advertisement in the local newspaper.

3. Make projections for the future. Now 19, Welti says that preparing a cash-flow forecast--both before he opened the business and on a monthly basis since--has helped turn his love for animals into a cash cow. out the sample spreadsheets listed below to find out for yourself.

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