Episode A.024 Cash Budget

Introduction
This week we continue our focus on the post pandemic re-opening of business. Other than dealing with customer and employee fears, there is nothing different or special about today's show except urgency. Unlike other expansions at the end of a contraction, this was not a structural - it was imposed. Normally a contraction (recession) is a result of over supply and decreasing demand awaiting a unplanned event to prick the bubble. In this case the demand still exists with diminished supply and we have sufficient information to predict the beginning of an expansion. The purpose of IBGR programming this month is to prepare the entrepreneur for the turnaround. it will require acting with urgency over the next 4 months.
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Show Objectives
Today's show is the culmination of this weeks conversation about building a post-pandemic plan to reopen fast and hard. I will provide an example of a spreadsheet for you to build. 

What You Need to Know
We are going to take a static picture of the current situation and ignore the future for the moment. The reason is what you have currently in the bank account, what AR (accounts receivable) you have commitments for payment to you, and AP (accounts payable) you have committed for payment to suppliers is all you can predict.

The picture we are drawing is what will happen if all the current commitments are honored and you receive no revenue over the next 4 months.
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What You Need to Do
Here is the current situation. You are owed $90,000 with commitments for all payments received in the next 120 days. You owe $75,000 to your suppliers with a commitment from you to pay everything off within 60 days. Your fixed costs are $3,00 a month for each of the next 4 months and you currently have $5,000 in the bank.

The question: without additional revenue (1) what does my cash on hand look like over the next 4 months, and (2) do I need a line of credit and for how much?

Normally you would apply an equation like this AR - AP = COH (Cash On Hand) means your situation is a positive $15,000, no problem right?

​Lets build a spreadsheet based on these assumptions to answer the question:

Sample Cash Flow Spreadsheet

Value	30 Days	60 Days	90 Days	120 Days	Total
Accounts Receivable	50,000	10,000	15,000	15,000	$90,000
Accounts Payable	40,000	35,000	X	X	$75,000
SubTotal	$10,000	($25,000)	$15,000	$15,000	X
Fixed Costs	(3,000)	(3,000)	(3,000)	(3,000)	($12,000)
NET	$7,000	($21,000)	($9,000)	$3,000	X
Cash On Hand	$5,000	($16,000)	($25,000)	($22,000)	X
Line of Credit	$0.00	$16,000	$25,000	$22,000	$63,000

Obviously you would add projected revenue to this picture to make it fully operational. That topic we address in B.024 Operational Budget. Our recommendation is you keep these separate and then build a master page that combines the information.
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