Keeping Up with Good Cash Flow Management

Unless you're an experienced spreadsheet jockey, developing a cash-flow management spreadsheet from scratch can be a daunting task. However, help is available in the form of prepared templates you can purchase that do all the calculations. You'll need to decide if they suit the needs of your type of business. Spreadsheets can be easily modified, so you can start with a purchased template, then modify it to more closely meet your business requirements.

How closely do you need to monitor your cash flow? For many companies, month-by-month projections for the next 12 to 24 months are sufficient. However, some businesses, such as retailers, prefer more frequent projections, week by week. A few businesses that handle a lot of cash, such as financial institutions, prepare daily cash-flow projections. At the other end, a small business with simple needs may be able to get by with quarterly projections.

Most cash-flow management tools can handle preparation of monthly projections for one or two years in advance. If you require a period of different duration or need to project further into the future, check to ensure the tool can handle it. Bear in mind, however, that the utility of cash-flow projections too far into the future may be limited. The cash-flow projection for the 60th month out may bear only a faint resemblance to reality.

The duration of the cash-flow projection period usually relates to the frequency of revisions or updates to the calculations. The shorter the period, the more frequent the updates. The frequency of your revisions and the amount of detail in your projection will determine how important it is to have the capability of automatically importing the latest actual number from your financial accounting or ERP system.

Is your business seasonal, with well-established fluctuations throughout the year? Check to see if your tool can automatically account for these variations. Otherwise, it may project that your Rocky Mountain ski resort will take in one-twelfth of its annual revenues during the month of July.