Tag Archives: Liveplan

Standard Business Plan Cash Flow: LivePlan

Most of my series on standard business plan financials is generic, meaning that it is about concepts, not business planning software. Of course I’m biased about business plan software, because I believe in LivePlan as the best available solution. I try to keep that out of most of my posts. However, when we look seriously at business plan cash flow, I honestly have to recommend LivePlan. It does mathematically and financially correct calculations in the background, so that your essential business projections are as accurate as your assumptions. That takes some additional assumptions for cash flow, which you do with LivePlan guided input, as shown below in this post.

LivePlan Cash Flow Assumptions

Setting Starting Balances

For existing companies, LivePlan uses simple settings of starting balances to make calculations and estimate payments and expenses and financial flows. The simple input is shown in the illustration here:

The Vital Cash Flow Metrics

Sales on Credit, Collection Days, Payables, and Payment Days

With LivePlan’s business plan cash flow assumptions function you can change critical cash flow assumptions and watch the impact on your projections as you do. Increase your estimated sales on credit, and you decrease your estimated cash balance. Increase the days you wait to get paid, and you decrease your cash balance. And with payments, increase your purchases on credit, and you increase your cash balance. Increase the days you wait to pay, and, there too, you increase your cash balance (and make your vendors unhappy, and possibly hurt your credit rating, but that’s for a different discussion).

Remember please that these are simple assumptions. Don’t sweat the details. You may be tempted to try to divide your receivables flow into categories of customers, or make allowances for special customers, but on the long term that doesn’t work well. This is planning, not accounting. Don’t expect your estimates to be exactly right for every month, and remember the goal is to set assumptions you can track during your monthly review and revision session.

If you have no idea, go back to fundamentals. Sales on credit are the rule with business-to-business sales, so if you sell to businesses, play it safe and put 100% sales on credit. If you sell to a mix of business and consumers, or you sell to some consumers on credit, then think it through. One easy way to estimate, if you have some past history, is to divide your average balance of Accounts Receivable for the last year by your average total monthly sales for the year, and use that percentage as a guide.

For collection days, you can calculate your average collection days from past results by using a simple formula (thanks to investopedia.com):

Definition of Collection Period

If you’re not sure, or you have no past results to go on, estimate 60 days unless you are in a particularly slow paying area of industry (you should know), in which case you should estimate 90 days.

Dealing with Inventory

You might notice in the illustration above the switch at the bottom of the LivePlan cash assumptions, for inventory. Service companies don’t typically have to manage inventory, so this is a switch that is either on (for product businesses) or off (for service businesses). When switched on, it gives you two additional assumptions needed to add the impact of buying and managing inventory into the projected cash flow.

LivePlan Cash Flow

LivePlan automatically takes your assumptions for sales, spending, and the three critical cash flow assumptions for sales on credit, payments, and inventory; and gives you month-by-month estimated cash flow. The result is in the illustration here:

Obviously cash is vital to business, and cash flow is vital, so this is a critical component of every lean business plan.

LivePlan Reality Check

Just as it did with the Gross Margin for the sales forecast direct expenses, the LivePlan Benchmarks view also helps you compare your cash assumptions to industry standards:

Sporting Goods Sample Benchmarks

Cash Flow Takes Constant Attention

Don’t think the cash flow comes out fine the first time you do your LivePlan projections. More often than not, and especially with startups, after the first round of assumptions, the estimated cash balance is negative.

That’s really important information. It tells you that you need to plan for working capital. If your projected cash balance is negative, then you’re not done with your projections. Welcome to the real world. You can’t have a negative cash balance. The spreadsheets don’t care, but the bank will, and your payees will, because your checks will be bouncing. So you have some classic options to deal with:

  1. Go back to your projections and figure out how to sell more or spend less; or
  2. invest more money as capital: yours, or some other investor’s; or
  3. borrow money to make up the difference.

With LivePlan, as you decide how to handle your working capital problems, you go back into your assumptions and revise them. Use the Loans and Investment feature to add money from either source. Use the sales forecast and spending budget to estimate how you will increase sales or cut spending.

Remember, though, that there is no use for unrealistic assumptions. Make it happen in the real world, not just in the plan. Lean business planning is about running your business better, not just managing projections to look good.

How did Tim Berry grow Palo Alto software?

I was amused to check in with Quora this morning and find somebody had asked me to answer “How Did Tim Berry Grow Palo Alto Software?” Obviously that’s a question dear to my heart. So here’s what I answered, which seems fitting for this blog today.

Business Plan Toolkit
The first Business Plan Toolkit in 1988

Slowly, carefully, bolstered by good product and reviews that validated, doing a lot of coding and documentation myself, and not spending money we didn’t have.

It started as spreadsheet templates. The first of those was published in 1984 to accompany a book “How to Develop Your Business Plan,” published by Oasis Press. In 1988 I separated from that book, and redid the templates to accompany my own book when I published “Business Plan Toolkit,” released in MacWorld January 1988. All of these early products were 100% my work, my spreadsheet macros and my documentation. It helped to have a diverse background, including 10 years as a professional journalist, foreign correspondent in Mexico City, plus a Stanford MBA. I could write about business so (people told me) others could understand.

Throughout the early years I kept up a healthy consulting practice doing business plans for some startups and some larger high tech companies, plus workshops on business planning for dealers of high tech companies. Apple was by far my best client, with repeat business in consulting on business planning from the beginning until 1994 (Hector Saldana was a steady client for years, and a supporter of the business idea, and informal advisor). The consulting supported marketing expenses. There was no Internet to speak of until 1995, so the early marketing was a combination of small ads in the back of magazines and product reviews in major computer magazines.

It was a major struggle for years.  I was sacrificing consulting revenues to prop up products. The motivator, for years, was “I want to sell boxes, not hours.”

My wife’s role was especially important during those long hard years. She didn’t give up on me. We have five kids and we depended financially on my consulting, but she stick with my idea of “boxes not hours” as I continued to use scarce funds to keep the product dream alive. We had some money to deal with because my role in Borland International paid off in 1986, but we were still struggling, with small houses and used cars. And by the way we’re still married as I write this in 2016.

When we moved it from Palo Alto to Eugene OR in 1992, I had three early equity shareholders (1% each) who agreed to surrender their shares because there was no value in them. My wife and I moved to Oregon because we wanted to. She said to me: “we put up with all the downside of you having your own business; let’s get the upside and move to where we want to live.”

By 1994 I was in deep trouble, with a quarter of a million dollars of unsold product stuck in retail, coming back from channels. The template products never made it. And in the words of Kathy Colder, a key purchasing executive from Fry’s, “Tim, your boxes suck.” At the worst point, we had three mortgages and 65K$ credit card debt.

Business Plan Pro
Business Plan Pro circa 2000

What I did then was decide not to just repackage, but to build stand-alone product instead, dumping templates entirely.  I found a local three-person programming company (Cascade Technologies, which no longer exists; its founder was Ken Barley) to take my templates and my vision and create stand-alone product for Windows using Visual Basic and an Excel-compatible spreadsheet we were able to buy as a tool, and include in the software. It added a complete interface to include the words as well as the numbers, and keep it all, even formatting and printing, inside the one application. I wrote about a third of the code myself, in Visual Basic. My vendor got a low monthly fee for 12 months, plus a percent of future revenue. We were still not able to spend money we didn’t have.

That effort was launched in 1995 and became successful as Business Plan Pro so I was able to stop consulting and dedicate myself to the business. My son Paul Berry joined me in 1998 and developed the web business with downloadable software. We grew quickly to more than $5 million annual revenues by 2000. (Paul left in 2001 and became CTO of Huffington Post in 2007 and founded RebelMouse in 2012).

In 1999 we took on a minority investment from Palo Alto venture capital, RB Webber and Associates. That was our first outside investment. In 2002 we negotiated a buyback with them because after the dot-com crash valuations had plummeted and the company was worth more to me and my family members than what an acquirer would pay for it.

I stepped aside in 2007 and asked Sabrina Parsons to become CEO while I focused on blogging, writing books, speaking, and teaching. She and the team released LivePlan in 2012 and that – a web app, SaaS, browser based has become very successful, having had several hundred thousand paid accounts already. I’m still chairman, and founder, but Sabrina and her team get a pretty free rein to run the company. Market share and awareness keeps growing and we’ve had several years of double-digit growth in revenues again, after the great recession. And it is entirely family owned.

Here is the source on Quora: How did Tim Berry grow Palo Alto software?

Q&A: Keep Your Business Plan Simple and Short

I received this question on my ask-me form at timberry.com

I have a question about writing a business plan for my [business]. How do I write a business plan reflecting very little start up costs and a loss so far? I have been putting off writing a business plan, but I feel as if I need to set specific goals in writing to strive for.  Most of the business plans seem so complicated for my very small business. Since I am trying to keep my costs very low, I’m wondering if it’s worth paying the monthly fee to create a plan or there another more economical (free) option?  Thank you for your time.

My answer:

Questions ask Tim Berry

Thanks, I’m glad you asked. Coincidentally, I just posted Business Plan Yes, But Comprehensive and Detailed, Not So Much earlier this week. But I’m happy to go over this again because it’s so important for real businesses to plan, but the myth of the big formal business plan so often gets in the way. What a shame.

That’s what my last book, The Plan-as-you-go Business Plan, was about:

  • The plan is for you, to help you manage, to set specific milestones and manage results with plan vs. actual analysis. 
  • It’s a collection of modules. Simple strategy summary, milestones, basic numbers, and so forth. Start anywhere. Get going. 
  • You do only what you need, just before you need it. Only what you’re going to use. 
  • Let it grow organically. 
  • When you have the business plan event, which means you need to show it to somebody outside your business, then you dress it up. Keep it on your computer until you have to print it. 
And regarding that monthly fee question, I have two points:
  1. I’m biased. You’re talking about LivePlan, published by Palo Alto Software. I’m the conceptual author. I believe everybody should be using it. 
  2. Does “keeping your costs low” mean you want to save $20 a month on a planning tool that makes the planning easier, simpler, and better? How much is your time worth? How many hours do you want to spend to save $20 per month?  

(Image: iStockphotos.com)

I’m Loving the New Version of Business Plan Pro

If you’re a regular reader you know I don’t normally do sales pitches here on this blog, but this is special. Last week Palo Alto Software introduced a brand new version of Business Plan Pro incorporating (finally) my Plan-as-You-Go Business Planning ideas into the mainstream of the software.

With this new version, when you start a new plan, Plan as You Go is the first choice for setting up a simple, practical, management-oriented business plan. Not the whole big formal document plan, but just what you need to run a business with. That’s the key screen above (with my annotations in red):

Now the new built-in option is exactly what I suggested in the book: a streamlined, practical outline, shown here on the right. Of course you can add more later and eventually make a larger business plan, but you do that as the business plan events happen, not before. So you add the embellishment, like description of management team, or exit strategy, only when you need it. Which is great, because a lot of people really don’t need it.

I wrote the book in 2008, but because we’ve been busy with liveplan, the new online web business planning, our mainstream software had to wait. So now I’m celebrating that it’s finally here.

We’ve also added a lot of video at many different points, so that – if you’re online – you get me talking about what you’re looking at, in very short snippets. That’s hard for me to watch, frankly, because I’m as self-conscious as anybody else … but as an author, I love the opportunity to talk to you while you’re working with what I wrote.

This is the 12th version of Business Plan Pro since the first one was published late in 1994, and actually hit the shelves in 1995. We’ve come a long way since the first one – it’s still my business planning advice, but I wrote a third of the code in the original, and now there’s a team of a dozen programmers – which makes it way better.

And, by the way, if you prefer an online version, or you’re a Mac user, there’s also a lot of my methodology and my instructions in the new online planning web app at www.liveplan.com.

For more information click here for the website or call them toll-free at 1 (800) 229-7526.