PDA

View Full Version : 2nd Year in business


tnt-g
05-14-2003, 09:53 PM
I am now in my second year of business and have over 60 accounts. We are doing very well with our clients and have been receiving many referals from them. What I would like is some input on how to find out projections of monthly spending and how to manage the money effectively. It seems to go as quickly as it comes in. How are you guys handling this end of the business. I would like to pay my partner and myself a decent income and also have money to reinvestin equipment and handle material costs.

tiedeman
05-15-2003, 12:02 AM
the best bet is to setup a cashflow statement. We actually use 3 different types of cashflow statements.

tnt-g
05-15-2003, 12:44 AM
Right now I am figuring the monthly cost of operation, but what do you mean by cash flow statement?

Let it Grow
05-15-2003, 01:57 AM
Do you use any accounting software? It makes it much easier to figure out what is going on in your business when you can print out financials right from your software, then you can take a look at exaclty where your money is going, when it is going, and whether it should be.
We use Quickbooks Pro, it's great for that sort of thing.
Cash flow statement would definitely help you out.

Green in Idaho
05-15-2003, 12:54 PM
Geoff,

As you do a monthly profit & loss statement slip two more items in the expense category.

1) Business Cash Savings
2) Equipment fund

1) Determine a % of revenue that you will save and literally set aside in a savings account for future operating expenses. Something like 1-3%. Build the account to a comfortable size and the occasional 'cash crunch' will not be quite so difficult.

2) Also determine how much of the business revenue is necessary to replace your equipment in the future when it expires. Start saving that NOW so you can buy equipment with cash if necessary. Look at other threads on here mentioning how people are having trouble with banks when trying to buy equip. A strong balance sheet (ample cash) will help if you need financing.

If you find that you are not generating enough revenue to set aside money for these two items, you may want to consider raising prices or cutting some other expense to save $ for these two items.
***************************
As mentioned a cash flow statement can help you steer clear of cash shortages. That is actually a big reason why otherwise successful business fail. If you are having to delay paying bills until additional receipts come in the door, you have a cash flow problem.

A simple and crude C/F analysis is much like bank statement but it goes into the FUTURE.

First throw onto a spreadsheet your current bank account balance in a column to the right of the worksheet (the money column). Drop the dates on the left column for the next 60 days. And then fill in the dates with what you expect to happen with your expenses and income.

You prob know the bills real easy... owner's draw on the 1st, cell phone on the 15th... etc. Put these in a column just to the left of the money column (the p&L column).

Next try to project when you are going to receive payments from your customers. Are they all due on the 20th? Do you get paid every day when you service them? Whatever... use your estimates and put those amounts in the p&l column too for the appropriate dates. If you have no idea, use last months bank statment for deposits as your starting point.

Next put in the money column a formula to add/subtract everthing. By looking at the daily balance you see if the projected balance in the future drops below zero --OUCH.

Yes it can be a little bit of time, but it may be well worth it now that your accounts are becoming established.

Updating it every month will help decide if you will have the cash next week to start a big one-time project or if you need to get more down-payment from the customer.... Updating it will take less time as you become more proficient.

Four columns::
Date_____ Item ____ $ ____ Balance_____

The item column is going to look a whole lot like you monthly statement except it will be in chronological order. The $ p&L column will show your net profit and the balance column show your daily cash balance.

An financial Cash Flow statement from most software is going to describe more of where you money comes from.

tnt-g
05-16-2003, 12:25 AM
Thanks Green I will get working on that this weekend.

AltaLawnCare
05-16-2003, 09:17 PM
Originally posted by Green in Idaho
Geoff,

As you do a monthly profit & loss statement slip two more items in the expense category.

1) Business Cash Savings
2) Equipment fund

1) Determine a % of revenue that you will save and literally set aside in a savings account for future operating expenses. Something like 1-3%. Build the account to a comfortable size and the occasional 'cash crunch' will not be quite so difficult.

2) Also determine how much of the business revenue is necessary to replace your equipment in the future when it expires. Start saving that NOW so you can buy equipment with cash if necessary. Look at other threads on here mentioning how people are having trouble with banks when trying to buy equip. A strong balance sheet (ample cash) will help if you need financing.


Thats a really good idea, Green...
I'm copy / pasting that one! :cool: