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In the last two
columns we have been talking about how to start our own business. Make a plan, pick a business related to something you love,
and figure out a target market that isn’t too large or too small.
Now you have to see if what you want to do will make any money!
Let’s do a cash flow. Keep
reading; it’s not that complicated!
A cash flow may
sound intimidating but it doesn’t have to be.
It is a way to see out how much money you’ll be spending and how
much money you’ll be receiving, and when.
You’ll see when your expenses will exceed your income and vice
versa; it is a plan!
A simple cash
flow is just a chart with rows and columns.
Label the columns “January”, “February”, etc.
Down the side show each item of income and expense.
Then place the amount of that income or expense in the column for
the month that the money will actually be received or spent.
The idea is to see how much cash is flowing in and out for each
month. (Remember to show
expenses as negative numbers and income as positive numbers.)
For example, you plan to set up your office in January, get a
mailing list, order inventory, design brochures in February, and do a
mailing in March. Make separate lines for each expense: computer, furniture, fax, etc.
If you finance anything, show the payment(s) for each month they
are paid. Now marketing
expenses: printing, envelopes, postage, etc.
You may order inventory in January charge it in February, and pay
it in March; put the payment in the March column.
Get the idea? If the
mailing is going out in March, you may expect some sales in April.
Estimate them and put the income into the April column.
Total each column to see what the net cash flow is for that month.
For example, January, February, and March will have expenses and no
income (negative cash flow). April
will have expenses and income; if income is more than expenses,
congratulations! You have
positive cash flow!
Some tips. 1)
Use a spreadsheet computer program if possible; easy to modify and no math
errors! 2) Keep it simple;
round to the nearest dollar and use a minimum.
I show anything that costs $20 or more.
3) Be conservative; over-estimate
expenses and under-estimate income. 4)
This is a living document and should be updated every day as your
estimates become real numbers.
How does this
help you? 1) It forces you to
thoroughly research costs and schedules.
2) It’s a plan! You
may see, for example, that you will have to spend $2,000 in January,
February, and March before you start getting sales in April.
Can you bear it? If
not, now is the time to find out. Maybe
it will work with a change in schedule.
By keeping an
accurate cash flow you can see what’s coming and prepare for it
accordingly.
Download
a free sample cash flow spreadsheet to help you get started!
(Spreadsheet works only with Microsoft Excel) RIGHT-click here, then
"Save Target As..." or "Save Link As..."
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