By Sara Orellana
The day I heard the term Cash Flow Sheet and learned what it was, lightbulbs came on in my head. I knew had found the tool I had been missing for years. Fast-forward 10 years, and I am still singing the praises of a Cash Flow Sheet.
I recently taught a class on Inventory Management, and was shocked to see Cash Flow appear in my notes. Reflecting on this, I decided cash flow is the lifeblood of both for-profit and nonprofit organizations. Learning how to manage cash and how to quickly pivot and adapt are the differences between success and failure.
When I teach budgeting, I focus on building and projecting a conservative budget. On paper, a budget should be conservative, lean, and achievable. At the end of the day, we should be confident that we will achieve our budget. Our financial goals should be outrageous, pie-in-the-sky goals that challenge, terrify, and stretch us beyond our comfort zone. We may say our annual revenue is projected to be $75,000 – which will cover all expenses and create a nice profit margin which we will reinvest into our business – but our goal should be to double, even triple this number.
The secret to achieving our goals is our cash flow and how we manage it. By the middle of each month, we should have completed and verified financial statements. Balance Sheets and Profit & Loss should tell the story of our businesses, show we are on track to meet our budget, and show how close we are to achieving our goals. Yet, when we do not have this information until the middle of the next month, making quick pivots and adaptations are not possible. We would be reacting to data, not responding.
By monitoring our cash flow on a weekly and monthly basis we are able to pivot and adapt as needed, make quick decisions designed to achieve our goals, and meet our budget. By knowing what we need to make in a week and a month, we can keep a rough estimate of revenue and expenses. During slower periods, this knowledge allows us to make decisions to save money, perhaps reduce the number of hours employees work, or reduce inventory on hand. Small decisions such as these, made daily, will ensure our businesses thrive.
In addition to monitoring cash flow, knowing the seasons of our business will empower us to manage finances more effectively. Every business has slow seasons. Knowing when these seasons are allows us to cut back when it’s slow and save during the busy seasons. Managing inventory also becomes much easier when we know seasons, meaning we no longer have money sitting on our shelves.
If you are not using a weekly cash flow method, I would encourage you to start. Having the knowledge to pivot and adapt as needed, to know when to save and when to spend will make the difference between surviving, thriving, succeeding or failing.
Sara Orellana, MS, MPH is an independent entrepreneur who specializes in strategic planning, leadership, and grant writing. She can be reached at sara@3raptorconsulting.com.