Monday, March 16, 2009

A Cash Flow How To For The Entreprenuer

Okay, this year the economy sucks. Yes, we all know it by now. However, for the entreprenuer, it is especially dangerous. The worst thing a small business can do is file for bankruptsy. Of course, you can only go bankrupt if you don't have enough money to pay your debts. The secret is cash flow.

I use a simple process that helps me see where the cash is coming from and going to. For a small business, cash truly is king. Here is how it works:

1. I create a spreadsheet showing all the months across the top row.
2. Then down the side I list all the sources and uses of cash. For instance, free cash flow from RentQuick is listed by each month. If the cash flow is income it is listed as a positive. If the cash flow is an expeniture, then it is listed as a negative. Other items are estimate tax payments, personal use payment, property tax, investments, insurance payments, etc. I list the net cash flow for each business I have. So a startup might be negative and a cash cow might be positive.
3. I then add up all the sources and uses by the month. The resulting spreadsheet shows when I need money and by how much.

Pretty simple.

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