The survival of your business comes down to how much cash you have. The moment you run out of cash, your business is over. You might already be at this place, you might have some time to reposition your finances, or you might have no idea. The question, then, is where your business falls, and how to hold out if you’re struggling.

Your Business Survival Depends on YOU

The survival of your business comes down to maintaining enough cash to operate. As a CEO or business owner, this is up to you. The best way to figure out if and where to make changes is by creating a cash forecast. This can help you see how much cash your business will have for several months and put you in a better place to make decisions.

Cash Projection

A cash projection monitors all of the cash inflows and outflows of your business. We can use this to build enough of a cash cushion for your business to pay all of your expenses. This article will help you understand how to set up a basic cash projection and use it to make the changes your business needs to survive.

Some additional resources we have to help you with this are the Cash Tracking Template and step-by-step tutorials, which you can access through our eLearning courses, as well as one-on-one meetings and business consultations that are available for our Cultivate members. 

Projection Overview

A cash projection has three main areas; it tracks revenue and cash inflows, tracks expenses and cash outflows, and calculates a month-to-month breakdown of your financial situation. After you have created these areas of your spreadsheet, you will enter this information, breaking out payroll expenses. It is a living document that may change even daily as you have updated information.

Cash Inflows: Revenue

Cash inflows largely have to do with revenue, which you can increase in three ways: 

  1. Be creative at adapting products or services
  2. Expedite project completions
  3. Prioritize projects that yield cash faster

Cash Inflows: Payments and Receivables

For companies that do invoices or billing, you can increase inflows by expediting collections. One part of this is calling or emailing every customer with an invoice past due. Hopefully, they could send this in right away, but if not, you might accept credit cards, which transfer the risk to the credit card company rather than you personally or offer a payment plan to get some cash flowing and improve your odds of getting paid to completion. 

You also want to call all of your first-time clients upon billing them. First-time clients, especially larger companies, often need you to send them a vendor form or a W9, so it is important to pay special attention to any of their invoicing requirements.

Cash Inflows: Loans and Contributions

Most small business owners are paid from the profit of a business as a draw. The opposite is every time you put money into the business as an owner contribution. If you’ve been fortunate, you’ve drawn profits out of your business for several years, but you might need to put some of that extra cash into the business.

Another form of a contribution would be a loan. An example of this might be a PPP or an EIDL loan. It’s important to note that you should be wary of certain kinds of financing, as offers that seem to get you several thousand dollars very quickly often come at a very high price and have the ability to sweep your checking account if you break one of their terms.

Cash Outflows: Budget

For your outflows template, you can do a very simple monthly budget by plugging in all of the expenses that your business has. A better way to create a budget would be to completely break out your expenses completely month-to-month. You can use financial software like Quickbooks to do this, just be sure to take payroll out of this formula.

Cash Outflows: Expenses

Once your expenses are laid out, you should go through every single item and ask what can be cut and or eliminated. You can also consider what can be delayed. 

After looking at what you are going to spend money on, you have to focus on expenses you are committed to and push out some of these cash outflows. You might need to ask for a payment plan or pay a bill with a credit card or some other form of financing if you have a large bill coming up.

Cash Outflows: Payroll

For businesses with biweekly payroll, two months during the year have three payroll periods. Breaking out payroll allows you to include these periods in your budget. Also, if you are in a position where you need to consider furloughing or laying off employees, you can easily see how that is going to impact your cash position. 

One thing to note is that as an owner of a small business, your wage is not included in payroll if you take an owner’s draw, and you might be able to take a little less money than in the past. 

Cash Outflows: Debt

There are several things to consider when it comes to debt.

  • Many small business owners have a high credit card balance and you might be able to transfer your balance onto a promotional card with low interest.
  • Just like a mortgage, you might be able to refinance your business loans
  • You might be able to get a loan payment deferral
  • You don’t want to accelerate payments you aren’t obligated to make by paying off debt

Once you’ve plugged in all of your inflows and outflows, you should be able to see what month you run out of cash. If it’s not enough, you might need to make another round of cuts, but with some tough decisions, you should hopefully be able to create enough of a cash cushion to stay afloat.