Cash flow tactics for microbusinesses

First, arm yourself with information

“April is the cruellest month.”

Opening line of The Waste Land by T.S. Eliot

Last week I wrote about mindset and some potential strategies for dealing with the recession from the COVID-19 pandemic. This week it got personal, and we’re going to get tactical.

First the personal. April was supposed to be a really good month. Based on updates from clients, I’m now anticipating an April revenue cut of roughly 35%. I’ve also re-evaluated my sales projections for the year and shaved off more than $20,000, based on what I know right now.

For my business, $20k is significant, but not life-threatening. April won’t be as strong as I’d hoped, but it’ll be OK. And I think some of that revenue will return later in the year as clients adjust to the new reality, re-work their budgets and un-freeze spending. However, I’m not plugging it back into my projections until I know more.

And that brings us to the tactical.

#tactics

Information is power, in good times and bad. So here’s a question to consider for your microbusiness: Do you know how much in cash payments you’ll receive this month? How about next month, and the month after that?

And by “know,” I don’t mean, “add up a few figures in your head and guesstimate.” I mean, show me the numbers. You should know, long before you get to the end of the month, how much money you’ll bring in. If you don’t, it’s time to change that.

One of the simplest and most useful business management tools is a cashflow forecast spreadsheet. I’ve created a templated Google Sheets version here. To get a copy, go to that link and under the “File” menu, select “Make a copy,” and save it to your own Google account. Then you can make whatever changes you like.

The spreadsheet allows you to project your cash flow each month. The important thing to remember as you enter numbers is that you’re plugging in the actual payments you expect to receive that month — not the invoices you issue or the estimates that get approved. You’re not tracking sales; you’re tracking how much money you’ll receive. This is important because, for microbusinesses, cashflow is king.

I update my cashflow forecaster once a week. It’s easy; here’s how you do it.

  1. Run a payments report in your billing or bookkeeping software. See how much you’ve received that week and update the ‘Actual Amount’ column.

  2. Run an invoice report and for any new invoices, or past invoices that have been changed. Add the invoice amount in the month in which you expect to receive the payment. If you have a client that pays in 30 days, for example, an invoice issued this month won’t turn into a payment received until next month. So record the payment on the tab for next month.

  3. Consider any new business proposals that have been accepted or other things you’ve heard from clients, and update timing and amounts of future payments.

Wait, couldn’t I also add my expected expenses to this?

You could. And that would allow you to estimate profit. But unless your expenses vary a lot each month, it’s probably unnecessary. I recommend keeping this simple. The more information you need to update each week, the more of a chore this becomes and the more likely you’ll skip it.

What if I’m not sure how much I’ll receive or when I’ll get a payment?

Be conservative. Don’t enter a payment for this month or next month unless you’re confident you’ll get it then. If you’re not sure when you’ll receive something, push it out another month or two in the future. If you’re not sure how much it’ll be, estimate an amount that’s lower than you actually think it will be. It’s better to be happily surprised when you get a higher or faster payment than disappointed.

This spreadsheet is a very simple way of figuring out how much you’re likely to bring in — this month, next month and beyond. By looking ahead, you can tell when you need to drum up more business and when it’s time to cut costs and conserve cash. I forecast cashflow up to a year in advance, knowing that I’ll adjust those forecasts as I get closer to those months.

In uncertain times, this spreadsheet can give you some peace of mind (if your numbers are healthy) or provoke anxiety (if they’re not). Either way, how you feel will be based on reality, rather than guesstimates or hunches. And that means how you act will be based on reality, and that’s powerful.

#resources

MicroConf has a good write-up of government stimulus programs for small businesses, freelancers, consultants and startups

The Washington Post has created a stimulus check calculator to estimate how much of a stimulus check you might receive