What is your cash position right now?

What do you expect your cash position to be in six months?

If you can answer these questions, then you are way ahead of most small business owners. Many have no idea what their cash position is, besides a rough estimate of their bank balance.  In fact, 90% of small business failures are caused by cash flow shortage. A temporary shortfall is manageable, but if it isn’t managed, then by the time you figure it out, you’ve lost the time needed to correct any mistakes and forge ahead toward success.

So, how can you stay on top of your cash flow? And how often? Well, the level of attention you give it depends on how much of a cash crunch you are in. If it’s very “crunchy,” then a Daily Cash Report would be ideal. This does not mean checking your bank balance every day, which tells you nothing about what is coming down the line and what is currently outstanding.

Daily Cash Report

  1. Starting cash position (from your books, not the bank) from the last business day, including outstanding checks
  2. Add: cash received from the last business day. Include credit card, checks, and cash payments.
  3. Subtract: cash disbursements from the last business day (bills paid, payroll, taxes)
  4. Voila! Starting Cash Position + Total deposits – Total Disbursements = Ending Cash Balance

If you are not in a serious cash crunch, then a weekly (or monthly) report will keep your eye on the ball. Note that some of the receipts will be estimated based on your forecasts, while many of the disbursements can be easily predicted based on your accounts payable aging.

Weekly Cash Report

  1. Starting Cash Position
  2. Add: estimated cash deposits for the week ending xx/xx/2015. Include credit card sales, checks, cash, less any coupons if these are significant
  3. Subtract: estimated cash disbursements for the week ending xx/xx/2015. Include payroll expense, payments to vendors, payments on debt, and taxes if due. You do not need to include credit card charges, as these roll into a monthly bill to be paid through accounts payable. If you are in a severe cash crunch, you may need to review which vendors are of the highest priority, or which will accept a partial payment.

The previous two reports, Daily Cash Report and Weekly Cash Report, are more immediate and tactical in nature than a longer-term report, but a similar report covering the next 3, 6, or 12 months would give you the strategic big picture to make decisions. Also, some disbursements and deposits occur semi-monthly, monthly, quarterly, or annually, so these can be easy to miss if you are just updating the weekly report without forecasting 3 to 12 months out. On a weekly basis, this long-term report should be updated with actual values, instead of the estimates, and with improved estimates (dollars and timing), otherwise the report becomes outdated and useless! A simple suggestion would be to use one color for the cells of actuals and another for the cells of estimates. Another would be to create a weekly report template, and then generate the weekly reports (and daily report(s), if desired) on individual tabs that rollup into a summary page for the current rolling report.

As the weeks and months go by (and you keep adding weeks to make a rolling 3-6-12 month report), you can graph the trends to help you forecast. As the years go by, you will be able to note and anticipate seasonality in your practice, in revenue as well as expenses.

A rolling 3, 6, or 12-month report with consistent updates will allow you, the owner, to make decisions, such as:

  • Can I afford to give my employees a bonus?
  • Can I afford to buy that piece of equipment, or should I rent/lease it instead?
  • Can I afford to buy in bulk for the discounted price?
  • Do I need to increase my prices?
  • Do I have idle funds that could be “put to work?”
  • Do I need to open a line of credit or another business credit card for those months where expected cash outflow exceeds inflow, to be paid back when a high season comes?
  • Can I afford to give myself a distribution?
  • Can I expand the practice?
  • Can I hire another veterinarian and take some time off?

Of course, with any financial report, garbage in = garbage out. The time you put in to ensure accuracy will be time well spent. I promise. To get started, check out Excel’s cash flow template (under Business Finance). While it doesn’t have much granularity, it is a good place to start. Or you can always reach out to us and we will customize one that fits your needs perfectly!