The document introduces cash flow statements, explaining that they track money coming into and going out of a business. It provides examples of cash inflows like sales and cash outflows like expenses. It emphasizes the importance of cash flow statements for managing a business's finances and for seeking loans. It also provides a case study of how business owner Cathy created a cash flow plan to improve her cash flow and avoid shortages.

1. WELCOME ! Preparing and Understanding Cash Flow Statements Presented by:

2. What is Cash Flow? Cash Flow is the flow of money coming into and going out from a business. Positive cash flow is when cash flows in faster than it is flowing out. Maintaining positive cash flow is a matter of timing. Managing cash flow is a matter of planning.

3. Why is a Cash Flow Statement Important? CASH is the Fuel that runs your business Running Out of Cash May be Disastrous! Must have money on hand: To Pay Bills To meet day-to-day expenses

4. What Information Makes Up the Cash Flow Statement? Money that comes in to the business Money that goes out from the business Money kept on hand to meet daily expenses and emergencies

5. Money that comes in to the business Cash Sales of Products or Services Collections from Accounts Receivable Income from Sales of Assets, New Financing

6. Money that goes out from the business Purchases of merchandise or raw materials. Operating Expenses (Wages and Salaries, Rent, Utilities, etc.) Loan Principal Payments Capital purchases Reserve and/or Escrow Funds Owners Withdrawal

7. What does a Cash Flow Statement show you? If the business has enough money to: - cover day-to-day activities - pay debts on time - maintain and grow the business without a negative cash flow.

8. What does a Cash Flow Statement show you? The need for additional working capital when sales increase since increased sales means increased purchases of material or labor. You should know how much additional working capital is required. Show where the additional capital will come from.

9. What does a Cash Flow Statement show you? The maximum loan payment the business can afford. The breakdown of principal and interest on your loan payments. Your weaknesses (an inability to generate and keep cash)

10. When is a Cash Flow Statement required? All of the time . Track actual results versus plan, and revise the plan if necessary . When seeking additional financing . Demonstrates your ability to repay the loan.

11. The Cash Flow Statement Helps you manage your business! Small business owners have a tendency to neglect the tasks of business management. This is a common mistake, and as a result, the business ends up managing the owner!

12. The Cash Flow Statement Helps you manage your business! Cash flow management is one task you will likely face on a daily basis . If you don’t start with a plan, you will spend a great deal of time reacting to events instead of anticipating events. Avoid the trap of being managed by your business - - learn to manage your cash flow.

13. The Role of Planning P l a n (prepare for the future) Evaluate A c t (explain variances) (implement the plan) Analyze Results (compare results) (something happens) Record (measure the results)

14. Cathy Decides to Make a Plan Cathy knows how much and when she will collect payments from residential customers Cathy’s payroll amount remains about the same each week Her commercial accounts are on contract and pay the same amount each month Cathy knows how much she will have to reimburse her employees for mileage

15. Cathy’s Plan Cathy can make an educated guess about how much income she might collect cleaning new houses and vacant apartments She can also ask the new homes builder and apartment managers to give her an estimate at the beginning of each month since they know when they will need her a couple of weeks before they call her.

16. Cathy Decides to Make a Plan Given all that Cathy knows and can assume, she could have drawn a “picture” of when cash was going to come in and when it would go out. It might look like the next chart.

17. A Matter of Timing Had she done this before the beginning of the month, she could have anticipated a cash shortfall and made arrangements to do something about it Without any plan, Cathy didn’t know she was going to run out of cash Had she created a plan, she could have come up with short-term solutions for her anticipated cash shortages

18. A Matter of Timing More importantly, she would have seen the need to come up with long term solutions to avoid future shortages

19. Positive Cash Flow is a Matter of Timing One way to create positive cash flow is to schedule cash to come in faster than it goes out Another way is to hold on to cash as long as you can

20. How Can Cathy Improve Her Cash Flow? Problem : Cathy invoices her commercial customers only once a month, even though she cleans for them every week. They pay her invoices according to her terms: 30 days. Solution : Cathy should send invoices on a weekly basis. The invoice amounts would be smaller (one week cleaning instead of one month),but the payments (cash) would come in faster

21. How Can Cathy Improve Her Cash Flow? Problem : Cathy pays her employees and reimburses their mileage expenses once a week. Solution : She should change her payroll and mileage reimbursements to once every two weeks (26 times per year) This allows Cathy to hold on to her cash longer.

22. How Can Cathy Improve Her Cash Flow? Problem : Cathy pays her suppliers in cash when she makes purchases. Solution : Instead of paying for her supplies in cash, Cathy should establish credit accounts with her primary suppliers. Again, Cathy will hold on to her cash longer.

23. Cathy’s Cleaning Service, After… Cathy didn’t collect any more cash from her commercial accounts, she just collected it faster. She did not pay her employees any less , she just held on to her cash longer. Cathy was still able to buy cleaning supplies when she needed them, she just deferred payment

24. Everybody’s Happy as a result of these changes Cathy didn’t “bounce” any payroll checks, which made her employees happy. She avoided borrowing money from a friend, which made her friend happy. She had considerably higher cash balances at the end of each week, which made Cathy very happy. She also begins a new month with a higher cash balance and a management PLAN!

25. Project Your Cash Future To create cash flow projections: Take the information you know plus information you assume, and apply it to a calendar or a time line. Some information is easy to predict: for example rent is a fixed amount due on the first day of each month Other information is more difficult to forecast, e.g. what will cash from sales be in January?

26. Project Your Cash Future When preparing cash flow projections, consider whether these or other factors might have an impact on your business: Seasonal fluctuations Holidays Community events Convention business in your town Sporting events Road construction Weather

27. Cash Flow Projections for Your Lender When applying for a business loan, a cash flow projection, or financial plan will be one of the most important documents you will have to submit. The cash flow projection should be for at least one year, maybe longer, depending upon the requirements of the lender. It is a good idea to submit three projections for the same period: a worst case scenario, the expected scenario, and a best case scenario.

28. Cash Flow Projections for Your Lender Projections must include a “cash in” line to show the loan money coming in to the business Identify how that money will be spent under “cash out”. Will there be equipment or inventory purchases? Don’t forget to include another “cash out” line reflecting your scheduled loan payments.

29. Cash Flow Projections for Your Lender It is common for a start up business to show negative cash balances in its first year. Most lenders expect your projections to show a cash break-even point around the end of the first year, and positive cash flow in subsequent years.

30. Cash Flow Projections for Your Lender You must also be prepared to show the lender how you plan to handle negative cash flow. Are you seeking a loan or a line of credit to cover the entire negative cash balance? Do you also have personal resources that you will be contributing? Do you have investors with available cash?

31. Cash Flow Projections for Your Lender Your lender will look for indications that you are using the loan proceeds to generate income e.g. marketing programs to increase sales new machinery to increase production new systems to improve efficiency new programs that will reduce costs

32. Helpful Web Sites, www. sba.gov U.S. Small Business Administration score.org Service Corps of Retired Executives uspto.gov Patents and Trademarks state.oh.us/sos Ohio Secretary of Sate; forms, information toolkit.cch.com CCH Business Owners toolkit vfinance.com Loans and investment for business bplans.com Examples of Business Plans startupjournal.com Wall Street Journal Center for Entrepreneurs officedepot.com Small Business Center, Downloadable Forms

33. The Dayton Chapter serves the following counties in Ohio: Montgomery, Greene, Preble, Darke, Miami, Clark, Mercer, Auglaize, Logan, Shelby, Champaign, and the northern edges of Butler and Warren. SCORE services are provided without regard to race, color, national origin, gender, age, and disability. Persons with disabilities may request reasonable (special) accommodations (with a two-week advance notice). For special accommodations, contact: Brenda Arrington. Address : 200 W. 2nd Street, Suite 104, Dayton OH 45402 Phone: 937-225-2887 Email : [email_address]