How Much Cash Do You Plan to Use?

Look at the monthly cash flow projection covering the next 12 to 15 months. If you’re an established owner, you can find this information in your monthly budget, or if don’t have a budget, from a financial forecast created for this purpose. For start-ups, you’ll find your answer in the financial section of your business plan. As you did with actual cash expenditures in the preceding paragraph look at the sales (cash in) and expenditures (cash out) separately.

Be conservative in your forecast as actual results often differ from what’s stated in your business plan. And keep in mind that expenses are usually more predictable than revenue because many are relatively fixed, such as payroll and rent (often the two largest expense categories). And for start-ups, separate the one-time upfront costs needed before you can open your doors from your ongoing operating expenses.

For a small business, the past is not necessarily the best predictor of future needs. You need to consider the stage of your business in your forecasts.

What Is the Stage of Your Business?

Are you in start-up, first year of operation, maintaining an ongoing business pretty much steady-eddy, or do you have plans to grow or make large purchases. Each of these will impact the cash forecast discussed above. While an established business may have good benchmarks, a start-up has few benchmarks and the most uncertainty, and thus should be more conservative when setting cash flow needs.

In growing businesses, accounts receivables, and maybe inventory, expand to support the increased sales. But it is often overlooked that you need cash to fuel this growth—you must spend money to generate the sale before the customer remits cash.

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