- Download a free cash flow template. You can find a 12-month version here and 3-year version here. Better yet, use Pulse to give your projects that professional polish (and math you can't mess up) that spreadsheets lack. Pulse is also better for sharing visual cash flow and collaborating with mentors and investors. Spreadsheets are perfectly acceptable, of course, but Pulse offers another, more subtle benefit: building trust by showing that you’re savvy.
- Create your sales forecast. A good rule of thumb is to create three different projections: conservative, moderate, and aggressive.
- Estimate your expenses. If your business is already up and running, plug in your past numbers. If you haven’t opened the doors yet, you may have overlooked certain sneaky, variable expenses like office cleaning, travel, tax work and LLC fees. It’s those little things that can get you, so sit down with a veteran entrepreneur. Ask him or her to help you identify likely expenses that you missed and poke holes in your projections.
- Plug in as much past data as you can–past, present, and future. Fair warning: This may take you awhile. If you start to go cross-eyed or get frustrated, come back to the task tomorrow. Ask for help from your accountant. Ask for help from your mentors and advisors.
- Commit to a monthly review—at a minimum. Pick a day each month, sit down with your co-founders, and run your actual numbers. Schedule it like you would any other mission-critical meeting. If you’re not outsourcing your bookkeeping to someone else, then the buck stops with you. Throwing receipts in a shoebox won’t cut it. Update your actual numbers and compare them to your projections. Pulse makes this pretty easy; this post will walk you through the steps. Once you know where you stand, you can develop a plan of attack and delegate responsibilities.
- Don’t let profits lull you to sleep. Your P&L Statement may look squeaky clean. But don’t let being in the black deceive you. You can be on budget and profitable AND still be broke. Do you have cash reserves? Ninety days’ worth of operating expenses is worth considering while you’re figuring out your financial ratios. Are you planning for that unexpected expense? What about the talented developer who moves on to a cushier gig? A contractor who fills in may cost you more per hour than your W-2 employee and skew your numbers.
Stay committed to your monthly review.
Surprises will come, but you can minimize their impact by staying on top of your cash flow and saving for a rainy day.
Master your cash flow projections now, and we can promise that you’ll make wiser spending and saving decisions in the future.