How to Handle Inventory in Cash Flow Projections

The four keys to creating a powerful tool to take control of your cash flow. 


There is an effective way to format your entries for cash flow that will have a dramatic impact on the way you manage your business.

Here are the four keys to creating a powerful tool to take control of your cash flow:

1.   Show Your Cash Flows by Month:
The schedule should show 12 months of cash flows.

Each month should start with the beginning cash balance for the month and end with the ending cash balance for the month.  The first six months should be actual results for your last six-month period.

The next six months should be projections.

There are several benefits to having the schedule set up this way:

               A)  Creating your projections is easier when you have the last six months of activity in front of you. You have a perfect view of what your cash flow is likely  to be because you have your ACTUAL cash flow results there to look at.

               B)  You can see your ending cash balances each month on a single schedule. You can tell whether the balances are going up or going down each month. You can then decide whether you are satisfied with the cash balances you are projecting.


2.   Revenues and Expenses Should Agree With Your Income Statement
You should include your revenues and expenses just as they appear in your income statement.

Don’t make the mistake of trying to show “cash receipts” and “cash disbursements” here. You will sabotage your objective of creating cash flow projections you can trust if you attempt that method. Unless you can quickly and easily relate your revenues and expenses on your cash flow forecast to your income statement, you will forever be confused.

Worse than that, you will increase the likelihood of creating inaccurate and misleading projections.


3.   EBITDA as the Primary Measure of Your Operating Cash Flow
The revenue and expense portion of your cash flow projections should come down to EBITDA. This is your Earnings Before Interest, Taxes, Depreciation, and Amortization. It is basically a measure of your operating cash flow.

Next- #4 of the four keys to creating a powerful tool to take control of your cash flow. 

Marj Weber
Marj Weber
Marjorie Weber has been educating entrepreneurs and guiding them in their search for capital for the past 20 years: combining financial literacy workshops with one-on-one mentoring. Marj is currently President of Primed 2 Grow Inc. a company that provides access to capital for both existing and start up enterprises. She has provided term loans and working capital to hundreds of small business in South Florida. She was Chair of SCORE Miami Dade from 2010 to 2014 and served as a financial advisor for SBDC/FIU from 2014 to 2017. She also served as an advisor to the Goldman Sachs 10,000 Small Business Program and the SBA Emerging Leaders Program and provides training for Veterans seeking an entrepreneurial path upon retirement from the service. She has facilitated workshops under the auspices of Miami Bayside Foundation, Little Haiti Cultural Center and several local banks. She commenced her career as a real estate investment banker in New York.

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