Cash Flow Peaks and Valleys

April 13, 2006

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When small business owners plan their cash flows, they usually assume that sales will occur on a regular basis. For example, if they estimate that they will have $120,000 in sales revenue, they typically presume that they will do $10,000 per month in sales and plan accordingly. But the real world isn't always like that. Some businesses are seasonal, while others endure various ups and downs. As a consequence, the business owner who has planned for $10,000 in sales revenue for a month in which he gets only $2,000 may experience a cash shortage because he hasn't planned properly.

To combat this problem, here's what you need to know:

Cash flow forecasting— to begin with, all new businesses need to forecast their projected inflow and outflow of cash.
Looking at some cash flow what-ifs— what happens when your cash flow forecasts are off? You'll need to be able to respond to unexpected results.
Filling cash flow shortages— many small businesses turn to third-party financing when shortages occur.