Cash Flow Basics

Whether you are starting a new business or looking to grow or sell an established business, it is essential to understand your cash flow. In addition to shaping your future business decisions, cash flow projections will also likely impact future funding.

Cash flow for beginners

A basic cash flow spreadsheet tracks cash receipts and cash paid out for each month. Cash receipts include all cash sales, collections from customer accounts, loans and other funding. Cash paid out includes all of the company’s monthly expenses, such as purchases, wages and payroll expenses, rent, loan payments, insurance, utilities, supplies, taxes, advertising or marketing expenses and professional fees.

One-time costs, such as capital investments and startup costs, must also be included in the corresponding month, i.e., when the purchase will be made and/or payment is due.

Recording the basic information listed above can help businesses understand when or how money comes in, how or when it goes out, and what’s left at the end of the day. More importantly, it can also help businesses project cash flow in the months and years to come.

By having a clear picture of cash in and cash out can also help identify weaknesses and opportunities for improvement. If the projected balance is negative, the business must cut expenses, use existing liquid assets, borrow or otherwise obtain more working capital.

However, even profitable businesses can benefit from cash flow analysis. For instance, negotiating reduced rent payments or improving collections procedures can free up cash for expanding products or services. Any capital raise or sale of the company can benefit from cash flow analysis.

The importance of cash flow charts 

Business owners should also be prepared to share their cash flow charts. Detailed cash flow projections are essential to a successful business plan. Potential investors want to see that your company will be profitable and how quickly. For existing businesses, cash flow statements are also required when obtaining loans or other forms of financing.

Where to start 

It is possible to create a cash flow chart using Microsoft Excel, but you will have to do all of the work yourself. There are a number of cash flow templates available online. The most basic ones are free, while the more detailed ones are not.

Accounting software programs often include cash flow charts as a feature, so if you already use one, that’s also a good place to start.

Dan Brecher comes to Scarinci Hollenbeck after being the head of the Securities and Investment Banking Department of a 250 lawyer Manhattan firm and then running his own boutique securities and investment banking law firm in Manhattan. His experience ranges from general counsel of New York Stock Exchange and NASD/FINRA member brokerage firms to representation of companies in hundreds of public and private securities offerings and advising institutional and high net worth investors. He is the editor to the firm’s blog:

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