SubscribeSMALL BUSINESS LEADER July 2005
SMALL BUSINESS LEADER
ISSUE # 73
July, 2005
Can you believe 2005 is half over already? Now is a great time to step back, take a hard look at your business and decide if you need to make some adjustments in order to achieve this year's Goals. The new Save-Your-Business Summer Check-up, http://primestrategies.com/saveyourbusiness/checkup, provides a business snapshot right now, helps you analyze your findings, then offers objective guidance in developing a clear strategy for a strong second half. It's worth $175, but it's yours at no charge before July 31st. Do check it out.
The Feature Article this month talks about everyone's favorite, C^sh Flow. OK, so it's not your favorite subject, but it is one of the most critical to have under control. The article is designed as a basic introduction to Cash Planning, but it's also a good review. And our July Telephone Roundtable topic, "Want Better RESULTS? Take Better ACTIONS", addresses the Action-Results relationship, which will include a review of Cash Flow. Be sure to join us if you're ready to take a closer look at not only your c^sh situation but all the Actions you take and how those lead to the Results you observe at the bottom line.
We'll be taking a break for August, but will be back in full swing in September. There's a lot in the works and we'll keep you posted along the way.
As always, I enjoy hearing from you. I love to answer your questions, and look forward to helping in whatever way you may want or need. Don't be afraid to ask. I've just been told by a new client, the reason he chose to work with me was because "I listened really well". Every business owner needs someone who will listen. Please be in touch if you would like to talk with someone who will listen.
To your success,
Marian Banker
Publisher
Small Business Leader
marian@primestrategies.com
www.primestrategies.com
NOTE: We have had to disguise some words in order to keep them from getting caught in the spam filters. Please bear with us.
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FEATURE ARTICLE:
Cash Flow Planning: Understanding the Basics
By Marian Banker
Are you afraid to look at your cash flow situation? Or maybe you don't know what to do about it, but you already know there is a problem. I'm going to make a "wild" suggestion. Maybe you do want to know what's contributing to the results you're currently observing. Your c^sh flow picture is a report card on how you're managing your business.
I take a very strategic approach to cash management. Since Actions produce Results, http://primestrategies.com/prime_strategies, it makes sense to look back at what the Actions were that produced current Results. If cash flow is an issue now, by knowing what Actions (or lack of Action) led to the current Results, you'll be in a better position to plan Future Actions.
One of the Key Operating Systems in any business is Cash Flow. When looking at the c^sh history of a business it's always helpful to review the decisions and actions that had an effect on c^sh along the way.
One of the main objectives in business operation should be to manage cash very carefully and conserve it whenever possible. That may mean the decision to rent a space you could grow into may not have been the smartest decision from a cash standpoint. Unless you can temporarily bring in additional income from the extra space, you're adding an unnecessary drain on your cash flow each month. It's always wise to consider the cash consequence, as well as other consequences, when making such decisions.
In its simplest form cash flow is really the inflow and the outflow of money through your business. The inflow must consistently be greater than the outflow in order to maintain a healthy business.
Inflows generally come from sale of goods and/or services, equity capital and loans. Outflow goes toward payment of costs associated with goods or services sold, operating expenses, taxes, debt and other liabilities incurred in operation of the business. To the extent possible, you want sales to produce more than enough to cover all expenses. Unfortunately, sometimes for a growing business that isn't always possible, so debt must be an option when and if needed.
To the extent that you can accurately project inflow and outflow demand, you can take appropriate Actions to get the Results you want. If you know it takes 90 days, on average, to collect on sales delivered, you will have to cover the costs of selling, producing and delivering before you will be paid for them. If you don't have a cash reserve to call upon, a loan or equity capital will probably need to be provided in the interim. If this is the model on which your business operates, you must take this into consideration in cash planning. Of course, repayment of debt incurred, must be calculated into future cash requirements.
If your business is cyclical, meaning the bulk of income is received in waves or spurts during the business year, you will have periods where you will either need to borrow or call from a cash reserve (if you have one). In order for a business like this to keep operating you will want to plan carefully. Try to get big expenses (like insurance premiums) to fall into the high income part of your cycle. This can usually be negotiated if you deal with it upfront rather than waiting for it to become an issue.
One critical Action you can take that will make a positive impact on your cash flow Results is to create a monthly projection of your fiscal year's cash flow. You can think of cash flow management as being similar to managing your check book. You start with your cash balance at beginning of the month; then take into account all the inflow and outflow during the month and then check the balance at end of the month.
One of the most critical elements is your sales forecast. The case study at http://www.toolkit.cch.com/text/P06_4312.asp will give you an example of how one company set up its cash receipts projection.
Costs to sell, produce and deliver your product or service account for Cost of Goods Sold. Knowing when you incur these costs in the s^les and receipt cycle will allow you to know if you may need additional support on an interim basis. Obviously, at some point the money must come in to cover these costs, plus enough cash left over for all other operating expenses. It may be helpful to view the Cost of Goods side of our case study (above), http://www.toolkit.cch.com/text/P06_4328.asp.
Other operating expenses make up another major element of business operation. Some expenses are probably fixed, like rent, lease payments, etc. Others will vary from month to month like phone, utilities, etc. Still others will occur from time to time, like insurance premiums, repairs, major purchases. As much as possible, plan for large expenses to occur when higher cash inflow is expected. But if you don't do your c^sh projections, you won't know when that will occur.
Debt repayment is not part of operating expense, nor are taxes. But they are a draw against cash, so in cash planning, they must be accounted for.
Here's a summary of what we've included:
Cash Balance Beginning
Income from Sales (in)
Lo^ns, as needed (in)
Cost of Goods (or Service) (out)
Fixed Operating Expenses (out)
Variable Operating Expenses (out)
Major Purchases (out)
Taxes/Debt Repay (out)
Cash Balance End
If Cash Flow Planning is somewhat new to you it may be helpful to try short term planning for a couple of months. A good example from the SBA is online at http://www.onlinewbc.gov/docs/finance/cashstplan.html, Don't let the terminology throw you. It's the concept that counts.
Once you get used to planning your Actions with specific Results in mind, you'll be well on your way to being in control of the cash in your business.
Assignment: Using the outline above, consider historical expenses in these categories, consider Actions that are planned for the near future and how they will impact on cash, then do a rough estimate of the inflow and outflow of cash over the next two months. It's a good start and you might be surprised at what you learn.
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QUESTION:
Which financial documents are important to review monthly?
Answer below.
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July Lunchtime Telephone Roundtable
Moderator and Discussion Leader: Marian Banker, MBA, Business Leadership & Strategy Coach
Topic:
Want Better RESULTS? Take Better ACTIONS"
Date: Thursday, July 26, 2005, 1 to 2 p.m. EDT
Marian Banker, http://www.primestrategies.com/interview, is known for providing entrepreneurs with events, programs and coaching, consulting and training in business leadership. She focuses on helping clients build the skills needed to grow a business to success. Using the Telephone Roundtable format, over the past two years she has provided a forum for small business leaders to learn through interaction with a virtual group of peers. Her Brain Exchange Roundtables are in-person events where everyone present gets to share from their knowledge and expertise.
In this Roundtable you'll be immersed in the strategic process of analyzing Present Results against Past Actions. In order to understand why you are where you are today, it makes sense to look back at what Actions produced current Results. We'll use the Save-Your-Business program's assessment tool, the Past Action - Present Results Review sheet. You'll receive this tool when you sign up for the Roundtable. Together we'll look at where you may want to make changes to Future Actions so you can be better prepared for the second half of 2005.
You are invited to participate if you...
Want to look more closely at this critical aspect of your business;
Are willing to step up to the plate and be accountable for Past Actions (or lack of Action);
Are prepared to reconsider Future Actions;
Are open to new perspectives, new ideas and guidance;
Are just curious about the significant relationship between Actions and Results.
We'll open discussion around the following topics:
Cash Flow
Marketing & Sales
Technology
Productivity & Staff
Customer Service
Communications
Structure & Accountability
And more...
We'll also talk about next steps. Don't miss this important and timely Roundtable.
There is NO CHARGE for the Roundtable.
To register and receive the call-in number, send an e-mail to roundtable72805@primestrategies.com. Within minutes you will receive the call-in number and instructions by-email from our autoresponder.
Here¹s what's been said about our popular Roundtable.
"Thanks for a great Roundtable. I'll use what I gained in my dealings with colleagues, friends and foes alike".
Mitria DiGiacomo, Distinction, http://www.distinctionmagla.com/
FLASH ! !
Would you like to be the Guest Expert on a future Telephone Roundtable?
Prime Strategies offers this excellent venue to give you visibility and credibility in the small business marketplace. Get the details. Send e-mail to marian@primestrategies.com with the Subject as Roundtable Guest Expert .
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ANSWER:
Minimally, you want to review your Income & Expense Statement (also called Profit & Loss) and your Cash Flow Statement. You knew that.
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Articles:
FIRST IMPRESSIONS
Networking is such an important part of many small business activities. It's always great to get reinforcement on how to make a good first impression. Joan Lloyd offers a few good pointers with back-up examples.
http://www.bizjournals.com/extraedge/consultants/at_work/2005/06/13/column170.html
KEY EMPLOYEES
Keeping and developing key employees seems to be a common concern for small to mid-size businesses. Chason Hecht suggests a perspective and actions you've probably heard before, but might be timely to review.
http://nyreport.com/index.cfm?fuseaction=Feature.showFeature&FeatureID=238
THE FALLACY OF MULTITASKING
Got so much to do you find yourself multitasking often? This may actually be the most inefficient way to carry out the many small tasks of doing business. Read this article by John Maxwell to get his perspective on how to get it all done and have a stronger sense of accomplishment.
http://home.att.net/~coachthee/Archives/integrateeverything.html
BUSINESS SECURITY
The SBA June newsletter focuses on the possible threats that can seriously impact your business. Articles touch on preparation, prevention and protection. Might be a good time for a security check-up.
http://www.sba.gov/sbasolutions/
TECHNICAL GLITCH
Tech Evangelist, Author and Speaker, Ramon Ray, received confirmation from Staples that they are experiencing lack of support from Palm on their PDAs. Read Ramon's blog report at
http://www.smallbiztechnology.com/avantgo/2005/06/staples-confirms-palms-pda-problem-is_30.shtml
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ABOUT THE PUBLISHER:
Marian Banker has been publishing Small Business Leader since January, 1999. Her focus is on bringing to the busy entrepreneur a quick look into the current world of small business from the perspective she's gained through coaching, consulting and training entrepreneurs in both service and product based businesses.
Marian offers individual coaching, business support groups, seminars and workshops on topics of critical interest to small business owners. Her monthly Lunchtime Telephone Roundtable has proven to be a popular way for business owners to come together around a specific business topic without leaving their office. See notice about this month's topic in the content above.
To learn more about her services, visit http://primestrategies.com.
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FEEDBACK:
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COPYRIGHT 2005 SMALL BUSINESS LEADER
A publication of Prime Strategies, 333 East 23rd St., New York, NY 10010
http://primestrategies.com
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Content in the SBL is for information purposes only and should not be construed as specific advice.
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