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If you're out of cash, you're out of business; plan ahead to avoid this disaster.
Money is the most important tool in any successful business, and making sure you have it when you need it should be a top priority. This requires creating and implementing a cash management plan.
Many business owners in our industry, even some who are extremely knowledgeable about decorating and efficient production management, have no idea what an income statement is. They get by running their business with "checkbook accounting" - which can lead to disaster.
Cash flow makes or breaks a business. In effect, cash flow is your business, and a cash management plan is essential to keeping it healthy. It's a road map to ensure you have the cash you need when you need it. This plan should be an integral part of your overall business strategy.
A cash management plan deals with three areas: receipts, expenses and profits.
CASH RECEIPTS
Cash receipts are the available dollars in your company checking account. This is not the same as what you bill your customers. It's important to distinguish between cash flow and sales. Cash flow is the money you actually have in hand; it does not include outstanding or uncollected sales dollars.
If your business has a history, your first step is to review your cash receipts for a specific time period, e.g., a day, week, month, quarter or year. (Looking at several periods provides micro and macro perspectives.)
Say, for example, a hypothetical business has cash receipts of $1.2 million a year. That averages out to $100,000 a month, $25,000 a week and $5,000 a day (using the common reference frame of 4.33 weeks in a month and, allowing for holidays, 20 workdays in a month). Of course, these are averages; actual...