More on cash flow (recap of session 6 at session 7)

Understanding cash flow can be very complex. Since we didn’t have much time in the previous session to discuss it, that’s how we started this week’s session.
Remembering the other two primary financial statements are balance sheets and income statements, the cash flow statement will tell you whether you’re ok, how to manage the flow of funds as payables and receivables cycle.
There are a few things you may hear when talking finance. Profitability discusses return, activity discusses the management’s ability but solvency may be trickier, it comes up when asking whether you have enough cash/receivables to pay outstanding bills/payables.
Changes in cash flow can happen in three areas: financing, investing and operations. Most changes will be to your operations but it’s important to calculate the other areas.
When setting up your cashflow statement, you’ll chart the months by inflows and outflows (you may need to look at weekly or quarterly planning depending on your business).
Craig explained that you may want to do a month “0” so you can include the costs associated before you even open the doors (ie. insurance, deposits, etc).
To help control flow, you’ll want to concentrate on bringing in money quickly and delay payments when possible. That doesn’t necessarily mean you want to go over 30 days on payments, but you may want to keep in mind that if there’s not an incentive to pay early and you know there will be inflows in the next day or two, a delay may be a good idea.
Once you’ve prepared you cashflow statement, you might notice some months are negative. Seeing that, you might be first concerned, but then you should feel relieved because at least you know about it ahead of time and can compensate or manage through. To get through, you may have to sell some old equipment, look at how to increase sales without incurring further unmanageable outflows, or use personal or family funds.
Craig also mentioned that you may consider a working capital loan. A few weeks ago, Randy Helm from Servus Credit Union was in talking about the same thing. If you are seeking money for a specific thing (like an expansion or a large project), it may be easier to access some funding.
“A business may have good sales, but it could still have cash flow problems,” Craig said. “If you know up front, you can manage them.”
You’re probably wondering when does your business become profitable? That’s your break even point (the point where you break even, lol).
There a couple of ways to look at this. The formula: BEP=total fixed costs/(selling price-variable costs). The chart:

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(sorry for the notey-crudiness)
At this point, there was a question from the participants asking “what if you’re selling various products at different price points?” You can try taking an average; create a dynamic formula; ask an accountant; come to the April 7 session to get some one-on-one advice. It can really depend, but overall keep your fixed costs low.