For the most part, we are all in business to make money and money can be a great motivator. The down side of money is the proverbial "monkey on our back." We get used to having money and enjoy that feeling, but start to panic when the cash starts to dry up. Most of us want to focus only on the FUN and SEXY side of our business (spending cash), rather than looking at the REAL numbers. And it's true - sometimes, this can be ugly.

Cash Flow Forcasting

Every business needs to do cash flow forcasting as ugly and as unpleasant as it may be.  You are already doing it now and may not even realize it.  A cash flow forcast simply identifies what cash will be coming into the business and where it will be going over a given period, be that a day, week, month or year.  When you do a cash forcast it enables you to predict peaks and valleys in your cash balance. It helps you to plan borrowing and tells you how much surplus cash, if any, you're likely to have at a given time. Many banks will require cash forecasts before considering a loan.

Keep It Simple

The cash flow forecast is a management tool, so keep it simple and understandable.  Formal Cash Flow Statements should such be reserved for such things as bank loan proposals and business plan presentations.  If you think that way, your forecast will be most useful to you, and that's what is important.  Start with your beginning cash balance, add to that the cash expected to come in either from cash sales, collection of accounts receivable or any other source.  This gives you an expected amount of cash to work with. Now the ugly part - start listing where the cash needs to go.  Start with the things that must be paid, things like bank loans, rent payments, wages, payroll taxes, inventory replacement, and your other operating expenses.  Don't get too detailed here or else you will drive yourself crazy.  Now if you do this by some standard period such as by week or month, you will be able to predict and anticipate any negative cash periods.  Don't worry if your forcast isn't perfect - I have never seen one that is!

Increase Your Cash Flow

Do you see periods of negative cash in your future?  Better to plan for it now and do something about it rather than wait until the last minute and panic.  The question is - How Do I Increase My Cash Flow?  Terry Peltz, Director of Performance Advisors LLC., offers some tips to businesspeople to increase their cash flow:

Don't buy on impulse 

Pay bills when they are due - not before

Get better terms from your suppliers

Refine your inventory mix

Reduce expenses where possible 

Watch your printing costs - especially the ink

Make use of the internet

Buy in bulk

Reduce office space

These and other cash flow improvement ideas can be found in the business management articles "Increase Your Cash Flow" and "Cash Management Tips for Small Business" at the Performance Advisors LLC website.

With a better picture of your future cash flow, you will know if you can afford that Cohiba Behike or those Mollini shoes.  After all, how sexy can it be when the sales clerk tells you your credit card was declined just as your girlfriend spots that sexy red Alex Perry dress.