Cash Flow Planning | Belk on Business - Episode 57 #belkonbusiness #joshbelk
1) Run historical financial statements for past three years including cash flow statements (cash inflows and outflows). Need to compute what it actually costs in cash to run your business each month (this will not match the total of COGS and expenses on your P&L)
2) Historical profit margin
3) Pull relevant operating data (labor statistics – employee increases and decreases as it relates to output, use of resources – amount of raw material needed to meet production demands, marketing spend – how much is necessary to drive top line revenue) – metrics used for your business type and model.
4) Accounts receivable and payable timeline. How long does it take for me to receive payment and how long do I have before I have to spend it
5) Estimates regarding future performance (what is needed related to resources)
6) Run sensitivity analysis – best case, likely case, worst case scenarios (break even) related to cash. How much cash needs to be spent to drive top line revenue to a point that I break even (labor, materials, overhead) given the timeline it takes to collect receivables and pay expenses? If I change a variable, how does it impact my business (assumptions based on historical data)? If I hire that next person, if I increase my marketing spend or change type of spend, implement new training/development program?
