Cash flow planning is an integral part of business sustainability. Much like the heart in our body, we can’t live without it. Cash flow is the heart of a business; we can’t stay in business without cash flow coming in regularly.

What is cash flow planning? Let me begin by providing you with few helpful tips and some important questions that need to be answered:

• It’s important to ensure product purchases for resale are carefully balanced to ensure investment in carrying inventory is minimized. It’s a delicate balance as you want your customers to view you as the go to company for your particular product.
• The above will help free cash tied in idle inventory and minimize the need to finance vendor payments while waiting for customer collection.

Below are some questions to keep in mind:

1. Be aware of your credit terms to customers. What is your credit terms, 30 days, How long after the sale does it takes for the funds to come in?
2. What are the business monthly fixed overhead costs? Rent, utilities, phone?
3. What is the timing of theses overhead (fixed) costs?
4. What is the timing of the fixed and variable costs?
5. What are the business variable costs that fluctuate with sales?
6. For service business, what is direct labour cost? And their timing?
7. What about labour costs? How much is fixed and how much is variable with sales?
8. What are the statutory taxes relating to labour costs? Their timing?
9. What about GST that has been collected less GST that can be claimed? What is the timing of actual remittance? What about PST remittance?
10. Are your receivables from sales closely matched in timing and dollars to your fixed and variable costs?
11. What is your sales forecast? It’s important to tie the sales forecast to actual cash inflows.

The above questions need to be answered when considering cash flow planning. It is the road map to maintaining a healthy business.

Sylvia Katz is a Certified General Accountant and has held senior level management positions in a number of companies. With a wealth of over 18 years’ accounting experience and a passion to help people, she brings a lot of value to small & medium businesses. Her experience includes a wide range of industries such as retail, car dealership, manufacturing, construction, research and development as well as not-for-profit. Find more about her at www.katzaccounting.ca or email her at sylviakatz@shaw.ca