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Financial
May 3, 2023

Cash Flow – What Gets Measured, Gets Managed…

Sponsored Content provided by Chris Capone - CPA; Owner and Fractional CFO, Capone & Associates

The difference between companies that grow - and those that scale profitably - is an emphasis on measurement, continuous improvement and data-driven decisions. 
 
Whether you’re running a $500k or a $100M business – we all experience the same issues, just bigger numbers and typically more stakeholders (and critics) as you grow…
 
I am going to break down a simple cash flow model that can be used for the most basic business models, but also scaled to large and complex organizations.  Please note this is just the starting point; the real work comes in as you continue to monitor, update and align with your business plan as you operate.
 
1. Define the time period for which you want to plan, and at which frequency.  I suggest starting with a 1-year period and forecasting by month.  This is going to give you immediate insights and indicators of short-term financial health.  

***Note I have been in situations where we have forecasted cash on a daily basis due to extreme circumstances – if you feel you are in that situation – then a monthly forecast is not going to be much help. Follow these same steps, but use a daily or weekly view***
 
2. Define your revenue streams.  Let’s assume we are a business that sells tangible goods and also offers a service.  Your revenue streams will be Merchandise and Services.  The reason you should separate your revenue streams is to monitor the contribution of cash to your business from each, and may provide some information you didn’t realize. Also, it’s pretty simple to do. 

3. Identify your primary business expenses and the timing of such expenses.  Here is an example of a few most businesses need to account for. If you have clean books, then you are golden, and you can download your historical data and use your P&L as the basis. 

a. Payroll and Payroll Taxes – weekly? bi-weekly? 2x / month?
b. Rent – Monthly
c. Vehicle and Equipment Payments (Monthly)
d. Insurance (Monthly? Quarterly? Annually?
e. Phone & Internet (monthly)
f. Marketing & Advertising (likely a mix of recurring and ad-hoc through-out the year) 
g. Large expenditures that may not have happened in the past 

4. Build a simple spreadsheet or even handwrite somewhere – here’s what mine would look like. 

Update this on a regular basis, compare your forecasts to actual results regularly to drive continuous improvement and understanding of your business model and where you need to focus. 
 
Remember that measurement, continuous improvement and data-driven decisions will increase your ability to scale profitably.  
 

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