Cash Flow Management & Projection

We are often asked, “How do you help us get cash?”

The most common answer is through a more efficient relationship with the bank. Banks lend money based on the ability to repay. When your financial records, including a cash forecast, demonstrate that you are in control of your business (and it is not controlling you) the bank is more inclined to support your requests. So the first step in cash flow management and getting more cash is to improve the quality, accuracy and timeliness of your financial statements.

Do you know how much cash to ask for? Is your line of credit at the right level? Have you reviewed your cash forecast to ensure that when you will need cash you’ll have access to it? Your B2B CFO® financial advisor offers cash flow projection services that can help you assess your needs so you can ask for a line that will truly benefit you when it is needed. The time to negotiate the line of credit is prior to needing the cash. If you wait until you are out of cash and cannot purchase enough inventory for your big selling season, you might be limiting your sales for the year and future years.

Often, business owners are not clear on what to finance. Our cash flow projection services can help you figure that out. If you use operating cash to pay for capital equipment, then you don’t have cash for operations. If you then use your line of credit to support operations, you might be paying more for that cash than if you had financed the capital equipment acquisition.

Your B2B CFO® advisor provides small business financial consulting. As such, each partner has an extensive network of service providers. Based on these relationships, if your bank is not interested or willing to support your needs, your B2B CFO® partner can introduce you to other bankers or alternative financing sources.

Speaking of alternative financing sources, bear in mind that banks are one source of cash, and often the best. However, there are times when equity financing might be called for. Your B2B CFO® cash flow management partner can connect you with investment bankers if they are what you need. Occasionally, the situation calls for non-bankable funding. An example might be an advance against a large government contract or major purchase order. Your B2B CFO® cash flow projection services advisor can introduce you to their network of alternative financing professionals.

Sometimes we help you get cash right from your own business. When sales have increased but cash hasn’t, your B2B CFO® cash flow management partner will dig into the financials to see if there is something you can do internally to improve your cash flow. Have your receivables grown disproportionately to your sales? If so, you are losing cash.

Is your inventory turning over commensurate to others in your industry? If not, you are losing cash. Are you maximizing terms on your payables? If not, you are giving away cash. Are you paying down your line of credit when you have cash? If not, you are giving away cash.

Are you utilizing the appropriate types of accounts at your bank to maximize your cash? If you process large volumes of cash, do you use sweep accounts to earn interest? Do you have the right credit card processing products to minimize your costs of processing? If not, you are losing cash.

Are your vendor terms reasonable? Can they be negotiated? Are you using volume discounts? These are questions your B2B CFO® cash flow projection services advisor will evaluate and help you answer.

Another area to review is costs relative to others in your industry. Your B2B CFO® cash flow management partner can compare your performance to others in the country and in your region. Are your personnel costs higher than the industry average? Is your gross margin in line with others? Knowing where you stand compared to others gives you guidelines and helps focus your attention to improve your own cash situation.

While these are a few ideas about how We Help You Get Cash, there is one more important point to consider. We want you to understand the importance of cash in your business. We want you to “Get It.”. Cash is the ball. If you take your eye off the ball, the ball will disappear. Get It?

Most business owners know that positive cash flow management is what keeps their business alive. Running out of cash is among the most devastating events that any business can experience. The first step in preventing this unhappy event is developing a cash flow statement for the next twelve months. Developing a cash flow statement requires a systematic approach to projecting the sources and uses of cash in future months.

To prepare a cash flow statement, we start at the beginning of the cash flow cycle with a forecast of sales by month for each of the next twelve months. This forecast can be at the company level, but analysis is generally easier if the forecast is at the product line level. A sample cash flow statement looks like the following:

Month #1 Month #2 Month #3 Months #4 to #12
Product #1
Product #2
Product #3

The next step in the cash flow cycle is to translate those sales into cash receipts. Using the company’s historical experience (at the product line level, if the collections experience differs across product lines, otherwise at the company level), we determine how much of each month’s sales are collected within 30 days, how much within 45 days, etc. Using these historical estimates, we can determine the amount of cash we expect to receive each month.

With the cash receipts projected, we can start projecting the cash disbursements. We’ll start by determining the costs of the sales we projected. For each product, we have raw materials, labor or staffing, and overhead expenses, such as occupancy costs, utilities and insurance. In the sample cash flow statement, we see something like this for the first product:

Month #1 Month #2 Month #3 Months #4 to #12
Product #1
Labor & Staffing
Overhead Costs

After repeating this process for each product line, we move to the next step in the cash flow cycle, which is to translate these costs into the time frames in which we have to pay for these elements. Based on vendor terms, we can project how much of the materials’ cost needs to be paid within 30 days, how much within 45 days, etc. We follow the same process for labor or staffing costs (the payroll cycle may be weekly, biweekly, bimonthly, or monthly), and for overhead costs. This produces the first part of the cash disbursements in the sample cash flow statement.

The second part of the cash disbursements section deals with other operating expenses: administrative and sales costs, research and development, and other expenses. After projecting these costs by month, and using the credit terms from vendors, we can determine how much of each month’s other operating costs we need to pay within 30 days, within 45 days, etc. We also need to estimate quarterly tax payments.

At this point, we have totals for cash inflows and cash outflows. After incorporating the cash balance, our sample cash flow statement looks like this:

Month #1 Month #2 Month #3 Months #4 to #12
Beginning Cash Balance
Cash Receipts:
Accounts Receivable Collections
Cash Sales
Borrowings on line of credit
Total Cash Inflows
Cash Disbursements:
Labor & Staffing
Administrative expenses
Total Cash Outflows
Excess (deficit) in cash

By projecting our cash flow projection at this level, we can see where we will have excesses or shortfalls in our monthly cash flow. If the result is a deficit, we will have to cover the shortfall through borrowing, stretching vendor payment terms, or by offering customers a discount for prompt payment.

After going through the cash flow cycle in this level of detail, we can see in advance where we will have shortfalls in our cash flow, and work with our banker or other funding source to bridge the deficit.

If the weekly cash flows fluctuate significantly during the month, we may need to break down our twelve month forecast even more by projecting cash flow amounts for each of the next 13 weeks. This is all part of our cash flow management services we offer.

Through this process of developing a cash flow statement, we have developed a great deal of detailed financial information. We can see whether cash flow shortfalls are the result of substandard profitability or because the working capital (receivables, payables) required to fund growth is significant. By looking at the drivers, we can determine what, if anything, we need to change in our business model to achieve a positive cash flow.

Contact us to find out how our cash flow management and cash flow projection services can help your business.

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