WHY USE A CASH FLOW PROJECTION?
The survival of your business is contingent on not only having positive cash flow but also a solid understanding of where your money is going each month. Even in this time of uncertainty, a firm education on cash flow and the impact this has on your business is the first step in providing a clear path to make it through these unprecedented times. This Cash Flow Projection Tool will help you lay out your cash flow to plan for the short term, as well as the long term. It will give you a tangible understanding of how your business is performing and will highlight the areas of improvement that are within your control.
You will want to take action and use this Cash Flow Projection Tool because as your current model and offerings pivot to a virtual or online model, it can be a huge challenge to understand exactly where your business stands financially today, next month, or even a few months down the road when we are back to our normal routines again. A better understanding of business performance, with the help of a cash flow analysis, will help you make better decisions. It’s easy to bury our heads in the sand when it comes to the numbers or financial focus, even when our studios are up and running during normal times; however, understanding what is going on within the business from a financial standpoint will help you take some control back, even with the uncontrollable nature of these times.
WHAT IS CASH FLOW?
Cash flow is the pulse of the business. The term cash flow refers to the flow of cash in and out of the business. A cash flow statement is a financial record that can tell you how your business is performing. It’s one of the most important reports in your business. Think of a cash flow statement like an organized snapshot of your bank statement. Depending on the detail of the report you can grab snapshots to compare the performance of your business over time.
Let’s break down the concept of cash in and cash out:
- Cash In
Cash flow into your business comes from your customers when they pay for your products or services. If you have extended credit terms for a client to pay after the purchase, you are also receiving cash in from your accounts receivable (money owed to the company).
- Cash Out
Cash flow out of your business is usually due to expenses like rent, payroll, supplies, taxes, and other bills from accounts payable (bills due from the company).
Your business goal, just like your personal goal, should be to have more money flowing in than out. When you have more money flowing in than out, this is referred to positive cash flow. The opposite result is negative cash flow, which is what we’re trying to avoid.
If you’ve already taken your studio to a virtual model, this will be a new revenue source to generate your cash flow projections. Hopefully, you have retained your loyal members through your continuous efforts and virtual engagement. Ideally, with the proper sales systems and techniques, you can gain an even broader reach because you’ve eliminated the physical proximity limitations of your brick and mortar, thus presenting an optimistic and positive cashflow scenario. Potentially, you will realize that this can be a sustainable offering and extra revenue stream that can provide value to your clientele, even when this crisis is over.
Prior to getting started, you will want to grab whatever information you have. If you use accounting software, you can generate the Profit and Loss as well as Balance Sheet to quickly get started. You will also want to use your gym management software to gain real-time metrics as you’ve navigated through the last few weeks on a virtual model. If you don’t have accounting software, you can use your gym management software, along with your bank and credit card statements, to manually start entering the data.
- Gather bank statements and a P&L statement for each month in the current year. Run your detailed sales reports on a monthly basis for January and February, along with a weekly detailed sales report for all of March. Having all the reports and data ahead of time will save you additional time during the entry process.
- Using this tool, the major takeaway is that you will input data into all of the grey cells. In some areas, a few extra rows are included and can be renamed, added to, or removed as needed.
- In Cell E2, enter the current date
- In Cell K2, enter the beginning bank balance
- In the Revenue section:
- Enter the names of the various revenue streams for your business. You can get as detailed as you would like, but for the purpose of this exercise, you may want to keep it simple to something like: Studio Classes, Virtual Classes, Retail Merchandise. Add/Remove lines as needed.
- Enter the totals of each revenue stream for each month beginning with January.
- In the Expenses section:
- The expenses are broken out into People, Product/Service, Tech, and Admin
- Rename, add or remove as needed.
- Begin entering the data from each category under People, Product/Service, Tech, and Admin.
- *This is also a good opportunity to look at all of your expenses that can be dropped while your brick and mortar studio is closed. For example, if you have a cleaning or towel service, and you are not using it currently, you should most definitely drop this service until we are “back to normal.” Dropping unnecessary expenses will ensure that your cashflow is in a healthier position.
- You should now have a basic Profit and Loss (P&L) statement bucketed out by month. We plan to take this a step further to track ALL cash in and out of the business.
- In the Balance Sheet Items area, start entering items listed that won’t appear on your P&L. For any category not listed, you can use the “Other” row unless it’s a major item on a monthly basis. In that instance, add an additional row.
- Take a look at the Cash Flow Rollup toward the bottom. This section will give you a summary of how your business is doing right now.
- Pro Tip: Accurate historical data should be input into the first three months of this year. Beyond this, you can play around with different revenue inputs and options, along with expense additions or deletions, to determine your financial outlook. There is no right or wrong way to use the predictive nature of this tool. It is simply a model to show you possible outcomes using the data that you feel is within your control.
- Pro Tip: I recommend setting up multiple tabs, and mapping out different scenarios based on the unknown nature of now, next month, six months from now, and one year from now. (Simply copy and paste the Cash Flow Projection template into new tabs to keep all of the formulas intact.)
- Upon completion, it’s time for analysis:
- How is your business performing from a cash flow standpoint prior to the crisis and presently?
- Are you positive or negative cash flow?
- Can you find any opportunities for new revenue growth within this current climate?
- If you keep expenses the same and increased revenue, how would that impact your business?
- If you keep revenue the same but made 3 adjustments on the expense side to improve cash flow, how would that impact your business?
The intention of this tool is to provide the ability to start breaking down your business and become more analytical with the data. The first step in making educated decisions based on the future impact of your business is awareness. With this awareness, you can model and test out different strategies. This exercise is designed to allow you to take back some control in your business. You can now predict the financial outcomes of any changes or pivots you’ve already made, or are considering to make, within your business.
Remember, knowledge is power. And while we’re taking the time, energy, and effort to pivot our services, it’s up to you to also take the time to reclaim control of the financial reality of your business. If you need help in navigating through this exercise, my team at Cultivate Advisors and I are offering free 1-hour advising sessions to all small business owners to help navigate through the next 30-60 days. As experts in partnering with small business owners 1:1 to weather these kinds of storms, Cultivate Advisors can help you manage cash flow and find innovative ways to not only survive, but thrive! Click here to book your free 1:1 advising appointment.