Ca$h Planning: Key to a Stable and Profitable Business

Like it or not, your ca$h flow picture is a report card on how well you’re managing your business.

Business management includes making sure you have the ca$h you need to cover expenses as they occur. Ca$h flow planning is a must if you want to be in control of your business. It’s only when you’re in control that you can become a stable and profitable business.

Good ca$h planning requires review of historical financial information, including a look at business cycle and sa/es cycle. Cred1t policies and practices, marketing plans, periodic expenses, de6t and ca$h access need to be considered as well. The concept is to control what can be controlled and to manage what can’t.

In order to do that, you will need accurate and timely information and know how to interpret what you see.

Ca$h Planning Basics:

Identify unusual ca$h needs as early as possible. Quarterly tax payments and 1nsurance payments often come due in specific months. For these months you obviously have to have the ca$h available. Use your historical financial information to help you identify such items.

Project both Income and Expenses for three to six months in advance. The key to making successful projections is to be conservative with income. Unless you know you’ve taken specific actions to increase income it will not likely be more; it might even be much less.

The objective is to maximize the “ca$h remainder” at the end of each month . That’s where the challenge comes in. You know you will have certain relatively fixed expenses each month, and there will be some which are variable. You will likely have some ca$h income which is relatively stable. If not, one of your objectives would be to seek ways to have a predictable baseline income (see Strategic Ca$h Planning below).

If expenses are greater than income, you have a negative ca$h flow . You can’t afford to sustain a negative ca$h flow for any extended period of time. Increase Income, Reduce Expenses.

Watch out for ca$h bottlenecks. Accounts Receivable and Inventory have the potential to tie up ca$h. These require early corrective tactics if they start to build up. Get help (if needed) before a real problem develops.

Most businesses spend too much on non-income producing items and services . Question every expense. Is that country club membership producing solid leads and eventual sale$? Do you need to travel to make the $ale or can it be done by ph0ne, fax and e-mail? Try to reduce these types of expenses. Better to have the ca$h on the bottom line.

Have a plan in place to cover the expenses when you know the income isn’t going to be there. Your options are borrowing (from an outsider or yourself) or selling equity (getting a partner who has ca$h). Unless you have a long lead time, borrowing is pretty much your only answer. The kicker, of course, is you must repay the loan over time.

Strategic Ca$h Planning:

Once you’ve got the basics in place, consider strategies that might create more consistent income with a reasonably stable and predictable ca$h flow. In many cases this can be accomplished with little or no extra expense through a strategic alliance or sub- contract arrangement.

People are really busy. Anything you can accomplish that will free up some of their time has the potential to be a sustainable, consistently income-producing service.

Add a new service – Consider use of the Internet and current technology to help you find another service that would be of value to your existing customers and would provide a reasonable consistent ca$h flow.

Jill added career coaching and resume writing to her mostly project- oriented executive recruiter business. Greg added online bookkeeping to his tax-heavy accounting business. All could be accomplished virtually and did not require hiring anyone.

Provide support to fill customer’s needs – Deliver the benefits that customers want. Keep asking what that is. If you see a pattern of requests for something you don’t offer, maybe you should. The demand is there.

Donna, a café owner, extended her hours and brought in a 20% ROI on the additional costs. Gerald started offering grounds maintenance to his landscape design customers which created a steady monthly income.

Convert Project Clients to Retainer Clients – Project work means sporadic income. Look at the client needs for each project and see how it might be converted to a longer term process and payout. Clients are often happier with a consistent payment for a specified amount of work or time. Offer extended services once you are on board with a client. They already know you and have a level of trust in what to expect from you.

Russell was a graphic designer who started with clients on a single project, and through excellent customer service and making the suggestion for additional work, was able to convert two out of three project clients onto monthly retainer for additional ongoing graphic services.

Take over some of customers’ functions – Where appropriate provide administrative support, customer service, facility maintenance, human relations services, order fulfillment. See what makes sense for your customers and your business.

Aileen was an executive coach who created a training program to groom and develop potential and newly promoted management for a client. The CEO just didn’t have the time or the skill to effectively carry out training. Aileen saw the opp0rtunity to be of ongoing extra value and was able to negotiate a monthly payment arrangement to carry out the training and coaching.


Ask your clients what they need that they’re having trouble finding or getting accomplished. Do the research on where there is an unmet need in the marketplace. Look for patterns, changes in regulati0ns, new technologies and techniques. Don’t wait to be asked; prepare your service and make the offer.

Select one service (or product) that can be added to provide consistent additional ca$h inflow. Be sure you have a good margin to make it worth your while.

You’re one step closer to a stable and profitable business .