SHOW & CHAPTER 37: THE MOST POWERFUL FINANCIAL TOOL - FORECASTING CASHFLOW - WILLIAM EASTMAN

During the early stages of a small business, one of the major failure points is cash flow. Business Owners need to understand their break even point and sources & uses of cash to prove the business idea by staying alive long enough to give their offer the testing time necessary.

It becomes the essential financial tool during an economic contraction, this and only this will drive decisions impacting how long the business will last.

EPISODE 169: Summary
Starts with understanding all costs and date based demands, next is finding ways to eliminate nonessential costs and then creating a cash forecast model that accurately predicts cash demands, the last step is to create a cash reserves to be used in emergencies - much like JIT+ for inventory

Know your BE point, weekly cash flow reports, maintain cash reserve, have a credit line, handle overdue accounts quickly, offer quick pay discounts, negotiate better terms for AP, use ABC account tools.

Topics:

• Purpose of Forecasting Cashflow
• Determine The Period of Time of the Forecast
• Determine the Method of the Forecast

EPISODE 170: What is the Purpose for a Cashflow Forecast?

A Cashflow Forecast is nothing more than analyzing how money moves in and out of the business. Once you have set the period for review, you can understand the velocity of cash (in or out faster) and gaps that need smoothing.

To make the forecast meaningful, you need to determine what question are you trying to answer.

Topics:

• Short-term liquidity planning
• Interest and debt reduction
• Covenant Visibility
• Liquidity Risk Management
• Growth Planning

EPISODE 171: What is Your Forecasting Period?
Once the question is known - the why for the forecast, the next question is the period or span of time.  Your challenge with time is the longer the period, the more inferred the numbers will become. If accuracy is essential, keep the periods shorter because the numbers will be more real.

Topics:

• Short Periods
• Mid Periods
• Long Periods
• Mixed Periods

EPISODE 172: Your Forecasting Method
​The piece of the puzzle is your approach going to be direct or indirect. Much like the discussion in the previous episode, the direct method uses real cashflow data. The indirect method is based on projected balance sheets and income statements.

Topics:

• Time Horizon?
  • Short-term
  • Long-term
• What Question Does it Answer?
  • Cash to fund working capital
  • Cash required to fund longer term growth stratregies or investments in capital projects
• How to Build It?
  • Analysis of upcoming receipts and debits, payments and credits
  • Income Statements and Balance Sheet derivatives - customer reports

​Next Show/Chapter 41: FINANCIAL DASHBOARDS & SCORECARDS

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