In any business, cash is king, and it deserves the royal treatment from the entrepreneur. It is the real bottom line in a small business. Profits at the end of the year are definitely nice, but you have to be able to make it through 360 business days first. Many times throughout the year you have to be able to pay your employees, your vendors, your lenders, your insurance companies, your local and federal governments, and your shareholders. To do all of this, you need cash.

 To be able to manage cash effectively (so that your dreams of profit and success become a reality) you have to understand how cash moves through your business - your cash flow. You have to understand where, why, and how cash flows into (receipts) and out of (disbursements) your business.

The foundation of the cash management process is the cash flow budget (or just plain cash budget). The cash flow budget is a forecast of the cash inflows and outflows of your business over a certain period of time. Typically, small businesses budget their cash flows on a month-to-month basis, but they can certainly benefit from collapsing or expanding their time horizons.

For Example:

• If you are the owner of a clothing store in the local mall, you can use the weekly and daily cash budgets to anticipate immediate cash needs. They will help you schedule your daily deposit runs to your local bank, and help you identify how much cash (change) you need to have on hand for the weekend or holiday rush.
• If you are a newspaper distributor thinking about leasing another delivery truck, you can use your quarterly or semi-annual cash budget to see how these changes might impact your business in the long-term. There will be changes to your insurance policy, additional gas and maintenance charges, monthly lease payments, and you may have to hire an additional driver.

As you can see, the cash budget is an effective planning tool for the entrepreneur. The primary purpose of the cash flow budget is to predict the sources and uses of cash and to identify your cash position for a specific time period (daily, weekly, monthly etc.).

Preparing the cash flow budget involves four primary steps:

• preparing a sales forecast to predict the cash receipts
• forecasting other receipts during the period (investment, rental or other forms of income)
• forecasting your disbursements (wages, inventory costs, supplies, taxes)
• subtracting the total disbursements from the total receipts to come up with your cash flow balance

The cash budget will help you predict whether you will experience a cash surplus (with excess cash on hand that can be deposited in the bank or invested) or a cash deficit (with not enough cash on hand to cover expenses and uses of cash). With this information you can determine which cash management strategies to utilize to help smooth our your cash flow needs. For example, when planning ahead to thwart cash deficits, you can figure out ways to improve you cash balance like: speeding up the collection of your receivables and stretching out/delaying your accounts payable; working out favorable payment arrangements with your leading vendors; and drawing on your line of credit at the local bank.

Hopefully from this discussion you will see why cash is king and how the cash budget can be used to plan for future success. You need to understand your cash position and how it impacts (and is impacted by) your business decisions. The cash budget is the first step in understanding your cash flow needs and managing your cash flow effectively. Listed below are a few web sites that I found helpful in understanding cash and managing business cash flows. I hope you find them helpful too. Good luck in your future business endeavors!

http://www.toolkit.cch.com/text/P06_4001.stm – The Business Owner’s Toolkit was the best online resource I came across for this project. It is a service of CCH Incorporated, maker of business, legal and tax software, to provide small business owners with the most accurate and up-to-date information available, all in one place. The section on "Managing Your Cash Flow" was great with different pages for understanding cash flow, analyzing cash flow, cash flow budget, improving your cash flow, filling your cash flow gaps, and handling any cash surplus.

http://www.smartbiz.com/sbs/cats/cash.htm – The Smart Business Supersite (SBS) creators who set out to design the "single most important source of high-quality, ‘how-to’ business information on the ‘Net" should be pleased with this web site. It provides a wide variety of resources (online and traditional) for the entrepreneur including articles, reports, checklists, books, products, and links to other web sites. The SBS is open to submissions from small business professionals and entrepreneurs. So when you uncover the "key to success" you can share it with your fellow entrepreneurs.

http://www.enterprise.org/enet/main.html – The EntrepreNet is an electronic resource center for the entrepreneur provided by the Enterprise Corporation in Pittsburgh, PA. The site features information for entrepreneurs and small business owners including multiple links and an extensive online reference library. I found the Reflections section to be particularly helpful with insightful articles on financing, bootstrapping, and other cash management strategies.

http://www.entrepreneurmag.com/formnet/financial.hts – Don’t be afraid of Accounting. FormNet, an extension of the online version of Entrepreneur Magazine, provides every financial form you can think of (including the one’s that you don’t want to think about). Relevant to our cash flow discussion, this site includes a Personal Cashflow Statement, Operating Expense Forecast, Cost of Goods Sold, Monthly Profit and Loss Statement, Sales Budget, 12-Month Cash Flow Statement, and of course, the Daily Cash Report. All forms are in Portable Document Format (PDF).

http://www6.americanexpress.com/smallbusiness/segments/managing_your_cash.asp – The Small Business Exchange is an online resource for small businesses provided by the Small Business Services unit of American Express. It provides different articles, expert advice, suggested books, and a sampling of AmEx product solutions that may be beneficial to the small business owner.