How to start with cash flow management Part 2 - Income

In usual times, cash flow is critical - in unpredictable ones, it can be vital. It can decide whether the business can continue to operate or not. While large corporations have other finance tools at their disposal, small business needs to find their way to manage their cash themselves.

These are not stable times. The pandemic has thrown a giant curveball at entrepreneurs, and as a result, many owners had to start thinking differently - and more resiliently - about managing cash flow.

My advice: "Prepare for the expected and Plan for the unexpected."

In my last article, I have shown you how to gather information for your cash flow forecast report and start building it. In this article, I will help to categorize your income and look for collection situations.

Starting with Income

Your cash flow will allow you to answer questions like: " Aren´t these incomes too low for these expenses?".

In short, the goal is to determine the amount you will have available on a particular day.

If you don't have several income streams or insufficient cash flow, you shouldn't rely solely on the accounting system because that is a backward view of your numbers (what already happened).

Maybe it is better to monitor the cash flow weekly or even daily.

Having an income-based cash flow is good for you to have a realistic view of when you will receive payments. It makes it easier to avoid liquidity problems.

The cash flow plan will not bring you extra cash for your expenses, but it will give you time to allow you to improve your cash flow and prevent cash problems.

Cash flow forecasts are also useful for refining expectations, yours and others with whom you work or owe money to and for whom the creditworthiness of your company and the probability of repaying credits are essential. Thanks to a clearer income prospect, it is easier to plan the support future activities with economically healthy expenses.

Categorizing Incomes and creating a collection of scenarios

The best and easier way of building a good cash flow lies in categorizing your income. You can divide it into at least 3 categories and then derive at least three development scenarios from them.

• Already services or products invoiced. In this category, you can expect the payment on the due date.

• Services invoiced that have agreements or contracts. Based on agreements and contracts, you know how much and when you will receive the payment.

• Future collections. The third category is new customers and new sales (new products or services), where you rely on estimating payment terms.

Other items in your cash flow plan are also eligible in case of income but do not reflect the company’s performance. These include the sale of own assets, bank or owner's loans. Think of them as possible solutions to insufficient cash flow, but at the same time be aware that they are often associated with future expenses.

Send me an email If you need help categorizing your incomes or need help brainstorming on new income streams.

In the next article, I will help you with expenses forecasting.

If you think "Cash Flow Planning is difficult!" or "I don´t know how to start!" and you need help, please contact us!

We are here to help!