Understanding Your Cash Position

Understanding Your Cash Position

We all know cash is king.  Without cash our business growth is limited.  Even a profitable business can go bankrupt when it doesn’t have enough cash.  Therefore, it only makes sense that we should do everything we can to protect our cash and always be aware of our current cash position.

Your cash position refers to the amount of cash you have available to you at a specific point in time.  If you often find yourself at the end of the month wondering where all your money went,  it might be time to begin monitoring your cash position a little more closely.  Fortunately, there are many tools and programs that can easily help you do that, but my preferred method is using a cash flow projection template. Download your Cash Flow Projection Template Here.

Although simple in design, I believe the cash flow projection template is one of the most useful, yet underutilized tools in small business.  The cash flow projection template can help you become aware of how much cash is flowing in and out of your business.  It can provide you with a past and future view of when cash will be received, and when bills are supposed to be paid.  It helps you avoid the train wreck that can happen when you’re not paying attention.

Usually cash flow is tracked on a monthly basis, but it can also be done weekly as well.  I recommend spending some time to inputting numbers to get the hang of it, and then customizing it to fit your specific business needs.

Cash Flow Template

3 Steps For Using the Cash Flow Projection Template

  1. Enter Beginning Cash On Hand – The beginning cash on hand is how much you are starting with. This amount can be reconciled to your current bank account.
  1. Enter Projected Cash Receipts – On the top portion of the template enter how much cash you are projected to receive over the next twelve months. Using historical sales data and considering any current trends, enter the amount of cash you believe you will receive in each month.  Income can come from cash sales, accounts receivables, or other sources.   Repeat this process until all projected cash income has been entered into each month of the template.
  1. Enter Projected Cash Paid Out – Cash Paid Out is the area that projects where cash is leaving your business. These can be standard expenses such as buying merchandise, paying employees, or hiring professionals, or it can be other forms of cash payouts such as an owner withdraw or a loan payment.  Repeat this process until all projected Cash Paid Out has been entered into each month of the template.

Knowing Your Cash Position

After all of the Cash Paid Out amounts have been subtracted from the Cash Receipts, what you have left over is your cash position, and hopefully it’s a positive number.  Whether positive or negative, this cash position gets added or subtracted to the starting next month’s Cash On Hand balance.

I recommend reviewing your cash flow projection template once a week, and updating your Cash Receipts as well as your Cash Paid Out.  By updating the template frequently, you will always have up to date current numbers that replace the original forecasted numbers.

Better Decision Making

By keeping your template up to date, your ability to make financial decisions will improve dramatically.  You can instantly calculate ‘what if’ scenarios to see how a potential purchase now might affect your business several months later.

It’s up to you monitor and be aware of your cash position.   Business owners who are in the most control of their business are always aware of their cash position.  If you have never done this before I highly recommend you give it a test run and see what this new view of your business can do for you.

To your SUCCESS,

Daryl Murrow

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