20 Minute Cash Flow Planning Session from 1996

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Chaim Yudkowsky, CPA, CITP, CGMA - Byte of Success

Cash Flow Planning Instruction delivered in the late 1990s

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20 Minute Cash Flow Planning Session from 1996

  1. 1. Cash Flow Planning:Cash Flow Planning: How to Make More MoneyHow to Make More Money andand Ease Cash Flow StressEase Cash Flow Stress Featuring “Up Your Cash Flow” businessFeaturing “Up Your Cash Flow” business planning softwareplanning software
  2. 2. What we will Learn:What we will Learn: Understanding and controlling cash flowUnderstanding and controlling cash flow Bring your financials to lifeBring your financials to life Using financial data to increase cash flowUsing financial data to increase cash flow and profitand profit Developing a cash flow and profit planDeveloping a cash flow and profit plan How to use Up Your Cash Flow software toHow to use Up Your Cash Flow software to plan and monitor the financial side of yourplan and monitor the financial side of your businessbusiness
  3. 3. CASH FLOWCASH FLOW What is it?
  4. 4. ““Cash flow is the secret to life”Cash flow is the secret to life” -Dan Spilman - April, 1984
  5. 5. What is Cash Flow?What is Cash Flow? The cash coming into the business vs. The cash going out of the business
  6. 6. What is Adequate Cash Flow?What is Adequate Cash Flow? Adequate cash flow means there is sufficient funds available from the operations of the business or from loans to meet the current obligations of the business.
  7. 7. Consequences of InadequateConsequences of Inadequate Cash FlowCash Flow Loss of trade discounts Dissatisfied suppliers Inadequate inventory levels Lost sales opportunities Poor banking relations Lost expansion opportunities Loss of operating control Bankruptcy
  8. 8. PlanningPlanning
  9. 9. ...Sun Tsu, about 600 B.C.
  10. 10. TranslationTranslation
  11. 11. Foretelling TriumphForetelling Triumph Those who triumph, compute at their headquarters a great number of factors prior to a challenge. Those who are defeated compute at their headquarters a small number of factors prior to a challenge.
  12. 12. Much computation brings triumph. Little computation brings defeat. How much more so with no computation at all! By observing only this, I can see triumph or defeat.
  13. 13. Bring Your Financials to LifeBring Your Financials to Life . . . They must tell you a story. . . They must tell you a story
  14. 14. What’s WrongWhat’s Wrong With ThisWith This Statement?Statement? It lists income and expense without giving a clue as to what is right, what is wrong Numbers are a stagnant list Most entrepreneurs will look at the bottom line without looking at what’s between top and bottom It doesn’t tell you a story SALES $575,000 COST OF SALES 300,000 GROSS PROFIT 275,000 EXPENSES Accounting 1,000 Advertising 25,000 Auto 5,000 Consulting 2,000 Depreciation 5,000 Interest 4,200 Payroll taxes 15,000 Promotion 5,000 Rent 2,800 Salaries – administrative 35,000 Salaries – office 19,000 Salaries – sales 45,500 Supplies 1,800 Telephone 5,500 Travel 5,500 TOTAL EXPENSES 177,300 NET INCOME $97,700 STATEMENT OF INCOME For the Period Ended ________
  15. 15. Actual Planned Difference SALES $575,000 $615,000 $(40,000) COST OF SALES 300,000 320,000 20,000 GROSS PROFIT 275,000 295,000 (20,000) EXPENSES Accounting 1,000 1,500 500 Advertising 25,000 29,500 4,500 Auto 5,000 3,500 (1,500) Consulting 2,000 2,500 500 Depreciation 5,000 5,000 – Interest 4,200 4,200 – Payroll taxes 15,000 10,000 (5,000) Promotion 5,000 6,000 1,000 Rent 2,800 2,800 – Salaries – administrative 35,000 32,000 (3,000) Salaries – office 19,000 19,000 – Salaries – sales 45,500 40,000 (5,500) Supplies 1,800 2,000 200 Telephone 5,500 4,000 (1,500) Travel 5,500 1,500 (4,000) TOTAL EXPENSES 177,300 163,500 (13,800) NET INCOME $97,700 $131,500 $(33,800) STATEMENT OF INCOME For the Period Ended ________
  16. 16. Actual Planned Difference SALES $575,000 $615,000 $(40,000) COST OF SALES 300,000 320,000 20,000 GROSS PROFIT 275,000 295,000 (20,000) EXPENSES Accounting 1,000 1,500 500 Advertising 25,000 29,500 4,500 Auto 5,000 3,500 (1,500) Consulting 2,000 2,500 500 Depreciation 5,000 5,000 – Interest 4,200 4,200 – Payroll taxes 15,000 10,000 (5,000) Promotion 5,000 6,000 1,000 Rent 2,800 2,800 – Salaries – administrative 35,000 32,000 (3,000) Salaries – office 19,000 19,000 – Salaries – sales 45,500 40,000 (5,500) Supplies 1,800 2,000 200 Telephone 5,500 4,000 (1,500) Travel 5,500 1,500 (4,000) TOTAL EXPENSES 177,300 163,500 (13,800) NET INCOME $97,700 $131,500 $(33,800) STATEMENT OF INCOME For the Period Ended ________
  17. 17. Actual Planned Difference SALES $575,000 $615,000 $(40,000) COST OF SALES 300,000 320,000 20,000 GROSS PROFIT 275,000 295,000 (20,000) EXPENSES Accounting 1,000 1,500 500 Advertising 25,000 29,500 4,500 Auto 5,000 3,500 (1,500) Consulting 2,000 2,500 500 Depreciation 5,000 5,000 – Interest 4,200 4,200 – Payroll taxes 15,000 10,000 (5,000) Promotion 5,000 6,000 1,000 Rent 2,800 2,800 – Salaries – administrative 35,000 32,000 (3,000) Salaries – office 19,000 19,000 – Salaries – sales 45,500 40,000 (5,500) Supplies 1,800 2,000 200 Telephone 5,500 4,000 (1,500) Travel 5,500 1,500 (4,000) TOTAL EXPENSES 177,300 163,500 (13,800) NET INCOME $97,700 $131,500 $(33,800) STATEMENT OF INCOME For the Period Ended ________
  18. 18. SALESSALES COST OF SALESCOST OF SALES EXPENSESEXPENSES GROSS PROFITGROSS PROFIT AccountingAccounting AdvertisingAdvertising AutoAuto ConsultingConsulting DeprDepr InterInter PayrPayr PrPr RentRent Salaries – administrativeSalaries – administrative Salaries – officeSalaries – office Salaries – salesSalaries – sales SuppliesSupplies TT TT TT ActualActual PlannedPlanned DifferenceDifference $575,000$575,000 $615,000$615,000 $(40,000)$(40,000) 300,000300,000 320,000320,000 20,00020,000 275,000275,000 295,000295,000 (20,000)(20,000) 1,0001,000 1,5001,500 500500 25,00025,000 29,50029,500 4,5004,500 5,0005,000 3,5003,500 (1,500)(1,500) 2,0002,000 2,5002,500 500500 eciationeciation 5,0005,000 5,0005,000 –– estest 4,2004,200 4,2004,200 –– oll taxesoll taxes 15,00015,000 10,00010,000 (5,000)(5,000) omotionomotion 5,0005,000 6,0006,000 1,0001,000 2,8002,800 2,8002,800 –– 35,00035,000 32,00032,000 (3,000)(3,000) 19,00019,000 19,00019,000 –– 45,50045,500 40,00040,000 (5,500)(5,500) 1,8001,800 2,0002,000 200200 elephoneelephone 5,5005,500 4,0004,000 (1,500)(1,500) ravelravel 5,5005,500 1,5001,500 (4,000)(4,000) OTOTALAL EXPENSESEXPENSES 177,300177,300 163,500163,500 (13,800)(13,800) NET INCOMENET INCOME $97,700$97,700 $131,500$131,500 $(33,800$(33,800 )) STSTAATEMENT OF INCOMETEMENT OF INCOME For the Period Ended ________For the Period Ended ________ ComparingComparing how youhow you actually doactually do againstagainst your planyour plan tells youtells you where youwhere you are vs.are vs. where youwhere you want to bewant to be..
  19. 19. STATEMENT OF INCOMESTATEMENT OF INCOME ActualActual PlannedPlanned DifferenceDifference $575,000$575,000 $615,000$615,000 $(40,000)$(40,000) 300,000300,000 320,000320,000 20,00020,000 275,000275,000 295,000295,000 (20,000)(20,000) 1,0001,000 1,5001,500 500 25,00025,000 29,50029,500 4,5004,500 5,0005,000 3,5003,500 (1,500)(1,500) 2,0002,000 2,5002,500 500 5,0005,000 5,0005,000 – 4,2004,200 4,2004,200 – 15,00015,000 10,00010,000 (5,000)(5,000) 5,0005,000 6,0006,000 1,0001,000 2,8002,800 2,8002,800 – 35,00035,000 32,00032,000 (3,000)(3,000) 19,00019,000 19,00019,000 – 45,50045,500 40,00040,000 (5,500)(5,500) 1,8001,800 2,0002,000 200 SALESSALES COST OF SALESCOST OF SALES EXPENSESEXPENSES GROSS PROFITGROSS PROFIT 5,5005,500 4,0004,000 (1,500)(1,500) AutoAuto DepreciationDepreciation InterestInterest Payroll taxesPayroll taxes PromotionPromotion SuppliesSupplies TelephoneTelephone AccountingAccounting AdvertisingAdvertising ConsultingConsulting RentRent Salaries – administrativeSalaries – administrative Salaries – officeSalaries – office Salaries – salesSalaries – sales TravelTravel 5,5005,500 1,5001,500 (4,000)(4,000) TOTALTOTAL EXPENSESEXPENSES 177,300177,300 163,500163,500 (13,800)(13,800) NET INCOMENET INCOME $97,700$97,700 $131,500$131,500 $(33,800)$(33,800) For the Period Ended ________For the Period Ended ________ Focus canFocus can be placedbe placed on areason areas that maythat may be hurtingbe hurting cash flowcash flow andand profitabilityprofitability
  20. 20. Planning makes yourPlanning makes your actual financial dataactual financial data significantly more meaningfulsignificantly more meaningful to the management ofto the management of your business.your business.
  21. 21. What Happens When YouWhat Happens When You Compare Your Plan vs.Compare Your Plan vs. Your Actual?Your Actual? • It tells you what went wrong versus what went right • It tells you how far you may be from where you want to be • It gives you the opportunity to find out . . . • Why you are off the mark • Where you are going • What action must be taken to meet financial goals
  22. 22. It tells you a story aboutIt tells you a story about where your business iswhere your business is headed, and if you don’theaded, and if you don’t like what you see, itlike what you see, it provides the opportunityprovides the opportunity to change course.to change course. What Happens When You CompareWhat Happens When You Compare Your Plan vs. Your Actual?Your Plan vs. Your Actual?
  23. 23. Developing YourDeveloping Your Cash Management PlanCash Management Plan
  24. 24. What Is a CashWhat Is a Cash Management Plan?Management Plan? How much cash will I need? When will I need it? Where will I get it? Typically, to the business owner,Typically, to the business owner, cash management means knowingcash management means knowing in advance:in advance:
  25. 25. How many of you have your next 12 months’ cash plan in operation? How many of you know when you are going to run out of cash, or when your cash balances will drop to their lowest levels? How many of you know how long your present cash resources will last? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ?? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ?
  26. 26. The Primary Elements of Your PlanThe Primary Elements of Your Plan The Profit and Loss Plan – Shows anticipated operations (income and expenses) overShows anticipated operations (income and expenses) over the next 12 months or longerthe next 12 months or longer The Cash Flow Plan – Takes information from P&L plan, converts it into cashTakes information from P&L plan, converts it into cash flow, answers basic questions of “Where will my cashflow, answers basic questions of “Where will my cash go?” “How much will go there?” and “How long will mygo?” “How much will go there?” and “How long will my cash last?”cash last?” Forecasted Balance Sheets – The forecasted balance sheet is the only way toThe forecasted balance sheet is the only way to determine if the projected P&L and Cash Flow plans aredetermine if the projected P&L and Cash Flow plans are reasonable.reasonable.
  27. 27. Use Your Computer to PlanUse Your Computer to Plan and Monitor the Financial Sideand Monitor the Financial Side of Your Business!of Your Business!
  28. 28. TM
  29. 29. Your Secret Weapon!Your Secret Weapon! Your Ace in the Hole Your Trusted Financial Advisor
  30. 30. Up Your Cash Flow guidesUp Your Cash Flow guides you through entering what youyou through entering what you know about your business,know about your business, and then, shows you what youand then, shows you what you dont know about yourdont know about your business...business... What your future cash flow and profit will look like.
  31. 31. First, basicFirst, basic information aboutinformation about the company isthe company is entered:entered: namename beginning monthbeginning month incorporated yes/noincorporated yes/no year of forecastyear of forecast
  32. 32. Then, beginningThen, beginning balancebalance informationinformation regarding theregarding the company’scompany’s assets andassets and liabilities isliabilities is enteredentered
  33. 33. Then, sales data is enteredThen, sales data is entered into Up Your Cash Flow...into Up Your Cash Flow...
  34. 34. First annualFirst annual salessales Then monthly sales
  35. 35. Then anThen an assumptionassumption is entered foris entered for the patternthe pattern used toused to collectcollect revenuerevenue
  36. 36. Then, information regardingThen, information regarding Cost of Goods Sold is input.Cost of Goods Sold is input. There are various options...There are various options...
  37. 37. Option 1:Option 1: As a % of salesAs a % of sales Option 2:Option 2: Fixed and variableFixed and variable amountsamounts
  38. 38. Option 3:Option 3: In detail - cost ofIn detail - cost of goods broken intogoods broken into •materialmaterial •direct labordirect labor •depreciationdepreciation •payroll taxespayroll taxes •overheadoverhead Overhead can beOverhead can be forecast with 14forecast with 14 user-definableuser-definable accountsaccounts
  39. 39. Sales and Cost of Goods SoldSales and Cost of Goods Sold can also be forecasted bycan also be forecasted by product or product line...product or product line...
  40. 40. Here sales andHere sales and cost of goodscost of goods are convertedare converted to a dollarto a dollar amount byamount by forecastingforecasting unit price andunit price and quantity soldquantity sold
  41. 41. Once Cost of Goods has beenOnce Cost of Goods has been forecast, it is time to focus onforecast, it is time to focus on the operating expenses...the operating expenses...
  42. 42. First a basicFirst a basic paymentpayment assumption isassumption is created as tocreated as to how you will payhow you will pay the coststhe costs incurred for yourincurred for your expensesexpenses However, a custom paymentHowever, a custom payment assumption can be made for anassumption can be made for an expense that is an exception to theexpense that is an exception to the basic assumptionbasic assumption
  43. 43. Then you choose:Then you choose: •Start up expensesStart up expenses •Selling expenses orSelling expenses or •G & A expensesG & A expenses Then an expenseThen an expense to forecast isto forecast is chosen. There arechosen. There are tons of user-tons of user- definable expensedefinable expense accounts toaccounts to choose from.choose from.
  44. 44. An expenseAn expense may bemay be forecast as :forecast as : •an estimate or anan estimate or an adjustment to lastadjustment to last year’s amountyear’s amount •a % of salesa % of sales •a fixed monthlya fixed monthly amountamount
  45. 45. After the basic financial data is input inAfter the basic financial data is input in UYCF, your future financial itinerary mayUYCF, your future financial itinerary may now be looked at...now you can seenow be looked at...now you can see The plan that will: help you monitor where your cash is going and identify problem areas help you maintain sufficient cash balances provide the ability to manage your business from a proactive rather than a reactive mind-set help you increase cash flow and profit HELP YOU MAKE MORE MONEY....and EASE STRESS
  46. 46. Now you can see what your future accountNow you can see what your future account balances will look like andbalances will look like and planplan accordinglyaccordingly Your Future Financial ItineraryYour Future Financial Itinerary Future Balance SheetsFuture Balance Sheets
  47. 47. Your Future Financial ItineraryYour Future Financial Itinerary Now youNow you can see howcan see how operationsoperations will impactwill impact profitabilityprofitability and be ableand be able to maketo make adjustmentsadjustments to get toto get to where youwhere you want to bewant to be Future Profit & LossFuture Profit & Loss
  48. 48. Your Future Financial ItineraryYour Future Financial Itinerary Now you canNow you can see howsee how operationsoperations will impactwill impact cash flow andcash flow and be able tobe able to resolveresolve problemsproblems before theybefore they occuroccur Future Cash FlowFuture Cash Flow
  49. 49. Use theUse the comparitivecomparitive forecast vs.forecast vs. actualactual sectionssections each montheach month to montitorto montitor how you arehow you are doingdoing compared tocompared to where youwhere you want to bewant to be
  50. 50. This is your tool that willThis is your tool that will enable you to get behind theenable you to get behind the numbers every month to seenumbers every month to see what went right and what wentwhat went right and what went wrong.....wrong.....
  51. 51. By using Up Your Cash FlowBy using Up Your Cash Flow your financials will come to lifeyour financials will come to life and tell you a story that will helpand tell you a story that will help increase your cash flow andincrease your cash flow and profitability.profitability.
  52. 52. This is your tool that willThis is your tool that will empower you every month toempower you every month to ask the question...ask the question... “What happened?”
  53. 53. This is your tool that willThis is your tool that will always let you know...always let you know... How long your cash will last and when you will need more.
  54. 54. Once you knowOnce you know what happened,what happened, and how long yourand how long your cash will last...cash will last... You can figure out......You can figure out......
  55. 55. How to:How to: Make More MoneyMake More Money...and...and Ease Cash Flow Stress!Ease Cash Flow Stress!

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