Developing a Cash Flow Plan For Your Business

I have run several businesses since I was 12 years old, from watering lawns, network marketing, and real estate. I succeeded when I had a cash flow plan. What is a cash f low plan? It’s your business budget. Most people find the word budget limiting. So I use the term cash flow plan which I learned from taking a Financial Peace University (FPU) class.

Even with a sound business plan, clear goals, and loads of ambition, I see new entrepreneurs fail at making a budget. Especially home business owners who don’t realize that even if it is a online business or affiliate marketing business a budget needs to be created.

Business Budget

A successful business runs on a budget. An owner knows the cost of running his business. He knows the recurring cost, how much it will cost to finance a purchase, and the average monthly sales. Is there a need for expansion? Is there a need to add an independent contractor or employee? The numbers tell him where he is and where he needs to go.

It’s time for you to create your business budget. There are tons of personal finance books that can help you with your money. The best book I ever read was The Total Money Makeover, by Dave Ramsey. I also took his Financial Peace University Class.

I schedule a meeting with my new team members and the first thing we work on is cash flow planning. We do a 90-day budget. For some reason newbies are shocked that they have to invest every month into their business. When they make their first $1000 I enroll them in to FPU free of charge. Here are 6.5 steps I learned that you can implement today.

6.5 Quick Cash Flow Plan Steps:

1. Separate your Personal and Business Finances - This may come as a shock. But you are an entrepreneur. Yes, those lotions, potions, and magic notions you sell makes you a legitimate business owner. Financially act like a business. Open up a separate business account and don’t comingle your funds.

2. Go Through Your Bank Statements - I tell my team members to go through their last three bank statements, credit card statements, and receipts. If you have accounting software this will be easy. Separate your business and personal expenses. Now you have a snapshot of your income and spending.

3. Get Budgeting Software - There are several programs you can use. I use Quicken Home Business. It’s simple. Plus I can use it on my smart phone and it is automatically updated with my bank and PayPal accounts. Find what best works for you.

4. Name Every Dollar – This is where you start planning your monthly budget. You need to name every dollar. What do I mean by that? What ever income that is coming in… you need to spend that money. I am not advocating going broke. Every dollar needs to be spent somewhere. Every dollar needs it’s place in your cash flow plan.

It takes the average person about 90 days to become an expert and projecting a budget. Don’t get frustrated if you don’t get it right the first month. Unexpected expenses come up: you will forget about the car registration; the kids soccer games or a school event. Practice is the key.

I see newbies fail to name every dollar. When money is not assigned to a specific duty it magically disappears. That $600 surplus was just stolen by the kids, pizza man, late night snacking, the movies, or that new product launch. Money not managed disappears quickly.

Failure to do cash flow planning leaves new business owners broke and in debt. Naming every dollar gives you control of your money. Money needs to be invested in your business.

5. Business Emergency Fund – I did an interview with Dave Ramsey. He mentioned that every business needs an emergency fund. Just like you need a personal emergency fund the same rules apply for your business. I recommend starting off with $1000. One thousand dollars seems to keep Murphy’s Law away most of the time.

6. Opportunity Fund - This is really not a cash flow plan technique. But you do need to invest in your education and be ready when opportunities arrive. Designate a percentage of your income to a Opportunity Fund. I know of a colleague who had a chance to spend a weekend with a marketing expert. She had poor financial planning skills and missed the opportunity. The people who went increased their income by 25% that year. Create a opportunity fund so you won’t miss out.

6.5 90-Day Game Plan - Do a 90-day plan for your business. Then move on to doing a monthly cash flow plan. Name every dollar. Spend all of your money. You should not have any money left over for the month. Open up a separate account and keep your receipts.

Start thinking and acting like a business. Know where all of your money is going and you will succeed in business.