Category Archives: Lean Business Plan

A Simple Cash Flow Spreadsheet Anybody Can Use

Back to Fundamentals, Lean Business Plan, Planning Fundamentals

If there’s just one formal business skill every business owner should have, it’s understanding and forecasting cash flow. It’s not intuitive because it’s not the same as profits; but it’s vital. We spend cash, not profits. It’s one of the most important pieces of every lean business plan.

Here’s my recommendation for a relatively simple way to lay out cash flow in a spreadsheet, so you can see it. It doesn’t take a CPA or an MBA to do it … just knowing your own business. (Note: you can click on the image to see it full size, and you can find more variations with this search on the lean business plan site.)

Simple Cash Flow Spreadsheet

Do Your Numbers

Making Your Estimates

  1. In lines 3 and 4, you forecast the revenue from sales. Yours might be just cash sales, a single line. If you have sales on account, you know it. If you’re not sure (maybe you’re looking at a startup so you don’t have the experience yet), assume you do have sales on account if you sell to other businesses; and probably not if you sell to consumers. Line 4 is your prediction for when the business customers will pay invoices.
  2. The ‘Start’ column reflects the starting balances and starting funding for a startup. With an ongoing business, you might have that balance labeled ‘Dec’ for the ending month of the previous year. In this example, the startup owner borrows $55,000 and gets $25,000 as new investment.
  3. Lines 5 and 6 are important because new money from loans and investments doesn’t show up in your profits, but it’s there.
  4. That whole block of rows 3-6 is a simplification. You know your business. Where else does money come in? Maybe you’re selling assets too? Stay flexible. Take this simple example as just that, an example. Make yours specific to your business.
  5. Rows 9-10 are also simplified. Use as many rows as you want to estimate operating expenses, focusing mainly on fixed costs, rent, utilities, and payroll.
  6. Row 11 is there to make the point that cash flow counts what you spend for inventory and other direct costs of sales, when you spend it – not when it shows up in profit and loss. When a bookstore spends $10,000 in November to buy books to sell, those books might not show up in profits (as cost of goods sold) until December, January, or beyond … but that money leaves your bank in November. So you put it into your cash flow in November. If you don’t sell products, and don’t deal with inventory, then you might have a row for direct costs such as hosting, or customer service.
  7. Row 12 is there because most businesses pay a lot of expenses at the end of the month, or 30-45 days after received. For example, the ad you place might come through as an invoice that you’ll pay later. Row 12 is for all those things you pay later. And, just in case you’re keeping track, these are expenses, including tax and interest. The projected interest on that $55,000 loan is included there.
  8. Rows 13 and 14 show two items that are often forgotten in cash flow planning. Principal payments on debts, and buying new assets, don’t show up in profit and loss. But they cost money that goes out of your bank account.

Simple Calculations

As you can see in the illustration, row 7 sums the money coming in, row 15 sums the money going out, row 16 shows the cash flow for the month, and row 17 shows the projected cash balance. You can see from the illustration how the cash flow is the change in the cash balance, and the cash balance is the equivalent of checking account balance; it’s how much money you have.

They Key is Using it Right

First, tailor your cash plan to match the actual details of your business. This is a very simple example. Be flexible about adjusting it so it matches your business, and your bookkeeping,

Second, using it correctly requires keeping it up to date. Review it every month. Calculate the differences between what you expected and what actually happened, and make adjustments.

You never guess right. And this is all guessing. What matters is watching carefully and updating so you can react to changes in time.

Like all business planning, the value is in the decision. The business value of cash planning is the decisions it causes.

(Ed note: I’m reposting here from my post yesterday on the SBA.gov Industry Word blog: A Simple Cash Flow Spreadsheet Anybody Can Use)

Business Plan Market Research and the Fresh Look

Back to Fundamentals, Business Research, Lean Business Plan
The Artist
The artist takes a fresh look at the scene every time paints it. How many times as this man seen the banks of the Seine? It doesn’t matter, because he takes the fresh look every time.  The business needs to take a fresh look at its market and its strategic situation at least once a year.

Back in the 1970s when I was a foreign correspondent living in Mexico City, I dealt frequently with an American diplomat who provided information about Mexico’s increasing oil exports, which were a big story back then. We had lunch about once a month. He became a friend.

The Fresh Look

Then one day he told me he was being transferred to another post because he had been in Mexico too long. “What? but you’ve only been here for three years,” I said. I was disappointed for two reasons. “You’ve barely learned the good restaurants!” He explained to me that the U.S. foreign service moved people about every three years on purpose. “Otherwise we think we know everything and we stop questioning assumptions,” he said, “that’s dangerous.”

I remember that day still because I’ve seen the same phenomenon so many times in the years since, in business. We — business owners and operators — are so obviously likely to fall into the same trap. Our business landscape is constantly changing, no matter what business we’re in, but we keep forgetting the fresh look. “We tried that and it didn’t work” is a terrible answer to a suggestion when a few years have gone by.  What didn’t work in 2000 might be just what your business needs right now. But you think you don’t have to try again what didn’t work five years ago.

Not Necessarily Business Plan Market Research

For the record, I disagree with so many experts who insist on detailed and thorough business plan market research for every plan. I vote for a lean business plan that includes only what you are going to use. And a lot of us know the market already, so we don’t have time, resources, or budget to do market research for our normal planning process. I make this point here in my latest book on Lean Business Planning.

However, I do also suggest taking the “fresh look” at the market at least once a year.  Existing businesses that want to grow too often skip the part of business planning that requires looking well at your market, why people buy, who competes against you, what else you might do, what your customers think about you. Think of the artist squinting to get a better view of the landscape. Step back from the business and take a new look.  Use the standard Know Your Market techniques and content, just applying it to your business, not a new opportunity.

It’s about your now and future customers

Talking to customers — well, listening to customers, actually — is particularly important. Don’t ever assume you know what your customers think about your company. Things change. If you don’t poll your customers regularly, do it at least once a year as part of the fresh look.  As an owner, you should listen to at least a few of your customers at least once a year. It’s a good exercise.

For creativity’s sake, think about revising your market segmentation, creating a new segmentation. If for example you’ve divided by size of business, divide by region or type of business or type of decision process. Aim for strategic segmentation.

Remember to stress benefits. Review what benefits your customers receive when they buy with your, and follow those benefits into a new view of your market.

Question all your assumptions. What has always been true may not be true anymore. That’s what I call the fresh look.

 

 

The Lean Business Plan for Small Business Owners

Lean Business Plan, Planning Fundamentals, Planning Process, ,

“What? No, I don’t have a business plan. I’m not a startup.”

Too bad so many small business owners think that way. A good lean business plan for small business owners ought to be a great tool for running a business. Set strategy, tactics to match, major milestones, metrics, tasks, responsibilities, and essential business numbers. Keep it lean, review and revise it every month, and you’re way better off. Whether you’re a startup or an ongoing business. Just like planning a trip makes the trip better, so too, planning a business makes the business better.

That myth of the business plan for start-ups only gets in the way far too often. If you own or run a company, you probably want to grow it.  And if you want to grow a company, then you want to plan that growth. And the planning is only the beginning; you want to use the full planning process to manage growth.

Think for just a minute about how many different reasons there are for an existing company to plan (and manage) it’s growth. There’s the need first of all to control your company’s destiny, to set long-term vision and objectives and calculate steps to take to achieve vision. Without planning the company is reacting to events, following reality as it emerges. With planning, there’s the chance to pro actively lead the company towards its future.

For an existing company that wants to grow, planning process is essential. Everybody wants to control their own destiny.  The planning process is the best way to review and refresh the market and marketing, to prioritize and channel growth into the optimal areas, to allocate resources, to set priorities and manage tasks. Bring a team of managers together and develop strategy that the team can implement. Work on dealing with reality, the possible instead of just the desirable, and make strategic choices. Then follow up with regular plan review that becomes, in the end, management.

This normally starts with a plan.  The plan, however, is just the beginning.  It takes the full cycle to make a plan into a planning process. Here’s my view of the business plan for small business owners:

Core plan-900W

Interested? Download my new book on the Lean Business Plan: Lean Business Planning with LivePlan