Cash Is King: Estimating Cash Flow for Startup Businesses

Cash is KING in business.  When the coffers are full, the possibilities are endless and when cash is scarce, all bets are off.  New businesses must take strides to manage their cash flow and make sure they simply do not run out of cash. And while this is critical for new businesses it continues to be an important issue for all businesses, even those that are profitable. Learning how to estimate cash flow for your start-up or established business will be well worth the effort now, and in the future.

The first step to estimating cash flow is to track your expenses each month.  Utilize a spreadsheet to calculate monthly expenses such as cash payments for salaries, payroll taxes, rent, loan payments, marketing expenses, utilities and supplies. Some expenses must be paid up front while others may be paid later. Make sure you budget and track the expenses that are paid “later” to ensure you have the cash to pay them when due. Other payments may sneak up on you. Some expenses may be paid quarterly or even annually. If you diligently track these in your spreadsheet you can easily look ahead and see what your cash flow needs are.

In addition to estimating and monitoring your expenses, you also must estimate and track your cash coming in.  Managing your cash receipts is easy if you’re working off invested funds because you know the amount you have to spend. Be very cautious about counting on new investment, you may already know how hard it is to raise money so it is better not to count on it.

The trick to estimating your cash from sales is to realize that a sale in January may not be collected in cash until February. If you are unable to wait, you may need sales terms that require payment upon delivery, or in advance.

You can ultimately estimate cash flow by entering your beginning balance into your spreadsheet, estimate your cash coming in and out, and then subtract your outlays from income.  The result will be your cash left at the end of the month.  That figure is used as the beginning cash balance at the start of the next month.

Although manually tracking and estimating your cash flow is important, you must also understand the cash flow issues that are unique to your company. If you take the time to understand your cash flow cycle and address your situation, you hopefully won’t run out of the most important asset, cash.