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Last month I met with three clients to discuss, among other things, their cashflow – or at least for one of them . . . the lack thereof.

As a business consultant, to meet with a client and NOT ask about their Cashflow would be like you visiting your doctor and NOT being asked how you are feeling!

Cashflow is the lifeblood of any business. A savvy business owner is well advised to get a firm grasp on the concepts and best practices of Cashflow Forecasting.

In this article I will introduce you to our 3-part process for developing an effective and accurate Cashflow Forecast. It involves Activities Planning, Collections Forecasting and finally, Cash Management.

Just to be clear, what I’m referring to in this article is the cash coming into your business, AND the cash going OUT.

When many people first hear about Cashflow Forecasting, their mind immediately races to forecasting sales and collections – which is only a part of the equation – and a small part at that!...

As a standard office procedure, bank reconciliations are completed monthly.

Even though the bank statement may arrive 3 (or more) days after the month end, transactions resulting from the bank reconciliation should be posted in the same month covered by the Bank Statement.

We suggest recording payroll in a 2-part transaction. The first part should document the physical paycheck starting with gross & vacation pay, with the offsetting entries to balance the transactions (you decide which accounts to credit). The second part should document the employer’s cost of the payroll.

Refer to the check register for the dates and check numbers of all payroll-related checks.

Depreciation is the method we use in accounting to spread the cost of an asset over its useful life. In non-accounting terms . . . depreciation is recognized as the decrease in value of an asset over time, due to normal wear and tear, and is a fundamental part of Accounting.All Assets when purchased, are recorded at historical cost.

If we use an asset throughout the accounting period and over many years, the asset by its very nature gets physically used up in some fashion, generally as a result of normal wear and tear. In accounting, we practice a fundamental accounting principal of “matching” all costs or expenses with the revenues they helped create. This is called the Matching Principle.
The end result is that the financial statements will show the true cost of generating sales against the actual sales revenues that those costs helped to generate. Depreciation is a fundamental part of accounting.

The one thing that Depreciation, Amortization and Depletion all have in common is that they all refer to Assets. More specifically, they record the value of an asset that gets used up over time.

Depreciation specifically refers to most tangible assets such as equipment and automobiles, but such tangible assets specifically exclude natural resources.

Depletion is the form of depreciation that refers to natural resource assets such as mines, gravel pits, oil wells and the such.

Finally, Amortization is a form of depreciation that applies to intangible assets that you cannot touch or feel, such as goodwill.

The Entrepreneurial Nightmare . . . . No Sales!

Starting and growing a small business does not need to be complicated. But what do you do when the sales just aren't there?

Join us as we examine the causes & solution for this common problem. The solution is surprisingly simple!