TIGER Talk Recap: Cash Flow Forecasting: Show Me the Money

Written by Innovate New Albany@InnovateNA4 years ago

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Whether you’re running a successful business or launching a new one, you need to know how to track and anticipate your business’s cash flow. Using a simple cash flow forecast, you can better understand your revenue model, your monthly expenses, and how many weeks of cushion you’ve got. 

Michelle Murcia, Founder and CEO of Book+Street, and Ann Martin, CFO of Book+Street, presented “Cash Flow Forecasting: Show Me the Money” at Innovate New Albany’s TIGER Talk on November 1. TIGER Talks are held throughout the month, and educate attendees on technology, innovation, growth, entrepreneurship, and responsibility.

A cash flow forecast helps you understand how much money you need to raise, how long that money will last, and if you can afford to make necessary purchases such as buying equipment or hiring employees. 

Michelle and Ann said there are five steps to preparing a cash flow forecast.

Step 1: Show Me the Money

The first step in preparing a cash flow forecast is to identify what you are selling and who is going to buy it. You will need to know how much your potential customers are willing to pay for it, and how often they will be needing it. If your product is too expensive, you may not be able to sell it. If you don’t charge enough, you may not be able to cover your costs. You need to know if your buyers will buy your product monthly, quarterly or yearly so you can manage your cash flow.

Step 2: Build a Great Team

Employees are the most expensive part of any business, but it’s important to get it right. Decide how you will pay them, and how you will distribute this expense between Cost of Goods Sold, Sales + Marketing, General + Administrative, Operations and Research + Development.

Step 3: Identify What Else You Will Need

Think about the big expenses your business will need to be successful in the long term, such as office space, lab space, equipment and insurance. You may also need to contract with lawyers, accountants and consultants for the expertise you don’t have.

Step 4: The Big Stuff and the Other Stuff

Set a threshold of what you need and what you can live without. Do you need to buy expensive equipment in the first year? Do you really need an office building, or can your employees work from home? Prioritize what you need in the short term, and what you can add as your business is more established.

Step 5: Know How Much Money You Will Need

After you’ve identified your expenses, prepare a three-year proforma financial projection. Anticipate your cash in and cash outflows, and when you think you will break even. Ask yourself “What happens if….” questions, brainstorming every situation you can think of and how you might prepare yourself for it. 

Michelle and Ann showed a cash flow forecast spreadsheet example they use with their clients. All you need is a basic understanding of Excel and one hour a week. Businesses enter their bank balance, cash flows in the week it’s received, AR, sales and investment into the spreadsheet. They also enter cash outflows, such as accounts payable, payroll, rent, legal fees, etc. and the anticipated week those expenses will occur. This information gives business owners a realistic forecast of their cash flow.

They advised the group to research and learn from local resources—there are lots of them, and many are free. They also suggested consulting with lawyers, accountants, business development and marketing professionals, and network like it’s your job. 

If you’d like more information on cash flow forecasting or have further questions, please email Michelle at michelle@bookandstreet.com, Ann at ann@bookandstreet.com, or visit their website.

Innovate New Albany, the city’s incubator for technology startups, entrepreneurs and small businesses, features 16,000 square feet of space within the New Albany Business Park’s Signature Office Building, 8000 Walton Parkway.