09/14/2018
Cash Is King and Queen!
Why Cash flow Planning needs to be a driving force within any business
Five Simple Steps in Understanding the Principles of Cash for your Business
Cash within an operating cycle of a business, simply means monies that are generated and/or injected into it to sustain its operating activities.
Cashflow principally means the measure of gross sales (specifically; the collected revenues generated from sales) in relation to the business’ total operating expenses. The goal for both is that gross sales and its available revenues exceeds (i.e., profit), or at minimum, meets (i.e., break-even) the total operating expenses required to keep your business on a sustained course. The only other outcome is a loss, but it should be realized and managed within your operating cycles.
Good cash flow management principles should always be done by every business owner. For example, the world’s royals past and present require attentive staffs, counselors, and advisors to ensure that they are presented to the world in the best light possible. Cashflow management should receive this same measure of attention - Treat cash as royalty, or as King Solomon says in his Book of Proverbs, it will take “wings as an eagle and fly away”. The Cash portion of your balance sheet details the level of position and attention you have royally provided for your business.
Before going any further, we have a fantastic offer for your continued success…
A Free Weekly-Flash-to-Budget Report – Dunamis Unlimited Enterprises, LLC has a nifty tool that will assist you in your cash management planning. We firmly believe that cash should be managed on a daily or minimally a week-over-week basis, especially if your business is planning to manage any anticipated cash flow challenges.
This report has been designed as a Microsoft ® Excel ® Spreadsheet and provides the following benefits:
• Serve as a perfect tool to work alongside your existing accounting system; you can focus on your week-over-week activities within a calendar month.
• List key cash flow line items; and monitor their Actual-to-Budget transaction activities week-over-week. This can be critically important to view any sales and expense categories whose activities continue to be contrary to your strategic plan.
• Utilize the spreadsheet features to assist budget-planning before inputting the results within your accounting system.
• Avoid costly overdraft fees by reconciling your bank accounts on a week-over-week basis, guaranteeing that your available balances are accurate for your “use of funds” expense management.
• Navigate other week-over-week analysis activities that are available at your discretion. For example, you can tailor the use of the spreadsheet to track specific variable line item costs to determine the minimum level of VC resources needed to sustain your level of operating activities. We look forward in providing further consultation services that would assist your specific business model - We are here to help your business prosper.
If interested in this limited time offer; type “Flash” within the “My interest” line on the sign-up form – http:www.jhk2.com/
Treat Cash as Royalty, or it will take wings as an eagle and fly away.
By providing close attention to your Cash coming-in and going-out of your business; you can avoid overdraft fees on bounced checks, make sure those tax payments are paid on time, avoid forced store closures for non-sales tax payments, make sure your employees are paid, prevent your suppliers from cutting you off key inventory purchases. And most importantly, making sure you pay yourself.
Did you know that the cost for an unplanned restart of your business can far exceed what your normal operating day’s expenses would be? This is just a small list of the possible outcomes; and represents a departure from making sure that your business is represented in the best light possible.
Here are five simple steps to ensure that the above would not be your experience(s) These steps should be reviewed every 90-days to sustain the financial stability of your business.
1. Tracking and Estimating Gross Sales levels.
2. Tracking and Estimating Variable Costs (VC)
3. Tracking and Estimating Fixed Costs (FC)
4. Understanding Sources of other Cash
5. How to utilize a Line of Credit
1. Tracking and Estimating Gross Sales – Are your revenues generated-sales from an established business documented as a Sole Prop, Partnership, or Corp./LLC? If not, you just have a hobby. However, if you are annually filing tax returns that represent the cash flow of your business, you should actively track and estimate revenues from sales, with the costs that are associated with its estimate. Most importantly, a review process should always be in place to analyze Actual to Plan scenarios over time for any projected adjustments that need to be made.
2. Tracking and Estimating Variable Costs (VC) – Variable Costs are expenses that varies in relation to changes in the volume of your sales activity. For example, you have a boutique, so you need a supply of clothing and other related units for sale to stock your shelves and racks. That supply is called inventory, and subsequently, you sell that item at your cash register at an amount that covers its costs (i.e., wholesale), plus an additional mark-up amount. Both cost components comprise your price that your customers are willing to pay. Replace “clothing”, with “food produce” for restaurants, “hair, face and body beauty items”, for beauty supply stores, “produce, convenience, and produce items” for your general community stores, etc. There are many other examples that covers the distribution and manufacturing industry sectors, with manufacturing having a more elaborate process in calculating the costs of a single widget’s direct labor, raw materials, and production overhead expenses required for its assembly – Hint, “unit costs”. Most service/professional businesses do not have VC, because “widgets” usually are not their product line item up for sale. One exception may be Construction companies that have VC and may list them as “job costing”, or “project start-up expenses”.
Profit and loss statements summarize and detail most VC as a “Cost of Goods Sold” or “Cost of Sales” line item. These costs are considered flexible (variable) because they are in relation to the volume of sales and should be monitored. Once Cost of Goods are determined; they are subtracted from Gross Sales, resulting in what is defined as “Net Sales” or “Gross Profit”.
3. Tracking and Estimating Fixed Costs (FC) - Fixed Costs are expenses that must be paid by a company, independent of any business sales activity. Historically, it has been known as, “Selling and General Administration Expenses” within your profit and loss statement. For example, rent, loan principle and interest payments, salaried employees, utilities, insurance, payroll taxes, etc. Generally, FC is subtracted from Net Sales or Gross Profit, giving you a picture of your potential profit or loss within your current operating cycle. FC is not limited to sales volumes and will put your company out of business quick, fast, and in a hurry if they are not managed.
4. Understanding Sources of other Cash - So you have $10,000 in sales, $5,000 in total costs, and yet cash available in the bank is minus $5,000? This is a cash flow problem. This is an extreme example though, but what if you saw this projected? Understanding Sources of other Cash (or Sources and Uses of Cash) is very important for a cash injection alternative and can include the following call-to-actions: you; speed-up collection on account receivables, draw on personal savings, sale other business assets, ask family/friends, draw on an available line of credit, or enquire on other forms of creative financing. Most importantly, you’ve planned for it and you are treating cash as royalty by being prepared to execute a cash flow management strategic plan.
5. How to utilize a Line of Credit – By understanding the four previous points; a Line-of-Credit is one source of Cash (as a Loan) that will sustain your business on a short-term basis until revenues are enough to satisfy the required minimum “uses of cash”. Our rule-of-thumb is that Lines of Credits should have available balances to maintain a minimum 90 days’ worth of total operating expenses; providing that the revenues from sales and available cash in the bank are not enough to cover them. In addition, your company should have the capacity to pay the entire Line-of-Credit balance off within a 12-month operating period – Hint, short-term. You need to be further prepared (capitalized) for your next cash crunch, and your Line-of-Credit is now available for you.
In summary, “Know the state of your flocks and herds…” (Prov 27:23, 24). That’s managing “Cash” folks, it may have been mooing and bleating back in those days, but it was valued as royalty, “for a crown is not secure for all generations” (vs. 24). Knowing the state of your business then ensured that you and your family were “warm and filled” during the winter. Today, cash speaks in two colors, black and red, with red screaming “I’m out of here!”. Understand these 5 simple steps, and you may be able clip the wings of cash, so that it continues to stay nestled in your bank account and grow.
One final thought, we have Virtual Assistant services at affordable rates if you prefer someone else to complete your spreadsheet(s), accounting, or other office administrative services. Just put, “Virtual Assistant” within the “My interest” line on the sign-up form and we will be in contact with you – http:www.jhk2.com
Thanks, and we are here to help your business prosper!
Joseph
