90-Day Sprint – Get a Handle on Cash

Step 3: Prepare Cash Flow Projections (Weeks 5-6)

So here you are, you’ve come into an organization and you’ve figured out what needs to be done, you’ve grasped from a big picture what the issues are by interviewing people, and organized your accounting system. You’ve got the books up to date. Before you start analyzing historical information, you have to get a handle on cash. Cash is king. Where are you going and what does it look like? There are several ways you can do this. We like to start with projections.

Differentiating Budgets, Projections, and Forecasts

A budget is where you plan to go. A forecast is where you expect to go. A projection is where you might go. We use this more as a projection than we do a budget or forecast. We still do a budget at the beginning of the year and make a bonus off of it. Personally, we like projections and running the company toward a profitability target.


Why do a projection? Pretend you take a bow and arrow, and you shoot it at a target. What if you engineered a light or a guide-wire on the back, and you can control it in flight. This would make accuracy near perfect and hit the bullseye every time. You would also help in making course corrections, depending on the flight pattern. This thought process can also be applied to financials. The projection is a guide-wire that helps you track and adjust your behavior as you hit your year-end target.

The purpose of making projections is for you to produce results. Out of this come several strategic byproducts. One is it enables you to see 3, 6, 12 months ahead so that you can see forward rather than through the rear-view. Another is a stress-test: how will you be able to handle a crisis if and when it comes?

What Should You Project, and How Should You Project It?

90% of controllers do a projected income statement.

About 60% of them do a projected statement of cash flows.

10-15% do a projected balance sheet.

By doing a projected income statement, statement of cash flows, balance sheet, and compliance ratios for your bank, you separate yourself from about 90% of the professionals out there.

Ideally, the entrepreneur looks at the income statement, the bank looks at the balance sheet. It also checks your cash position, so you’ll know when you run out of cash. You do the statement of cash flows because if you don’t do all three, all three have to lock in and balance with each other. If not, you’ll have to review because you’ve made a mistake. You can’t do a balance sheet accurately without having that statement of cash flows.

We do the statement of cash flows in the indirect format. There are two ways to do this: direct and indirect. I personally prefer the direct method, which is (cash receipts – cash disbursements), but it’s too difficult to maintain, which is why we use the indirect method. This method came about because auditors needed an easier way to generate a statement of cash flows.Screen Shot 2016-07-18 at 1.43.11 PM

Drop-In Actuals

As we’re preparing projections for a company, we’re filling in actual numbers because external pressures often change a business environment. Consequently, each month when the actuals are filled in, the projections are tweaked for the next 3-6 months because we have new information. Our sales for the next 30 days should be accurate. In basic terms, we revise our projections every month or every quarter to adapt the financials going forward.

Types of Projections

Flash Report 

Once you have some clarity 6-12 months out, you should start focusing on the next 8-12 weeks. We use a Flash Report or dashboard to provide that clarity.

A Flash Report is a weekly snapshot of 6-8 key performance indicators that drive the profitability of the company.

(Check out our KPI Discovery Cheatsheet in our toolbox!)

In addition to KPIs, we tackle the liquidity section because if you’re a growing company, you need cash. You need to know where most of your cash is being tied up, and where you can unlock it. In Step 2, we advised you to organize your financials; this is where you can really calculate and track your DSO on a weekly basis. Both of these reports tend to reinforce themselves.

Daily Cash Report 

In addition to your KPIs, you must get a “feel” for your cash flow. Cash flow is like the blood pumping through a patient. It is a strong indicator of the health of the company.

Keep in mind that the cash report is not just for the financial leader. It is intended to be distributed to the key management team. They, too, should feel the joy and pain of cash flow!

Another function of the daily cash report is to project the cash needs of the organization. By doing so, you don’t find yourself scrambling to make payroll on Friday!

13-Week Cash Flow Report

In case of fire, break glass! We use the 13-week cash flow report for those situations where we are in a cash crunch.

It is  useful to manage cash, but it is difficult or tedious to maintain. Consequently, if liquidity is not a problem, we don’t often prepare this tool.


Dynamic Cash Flow Projections

13-Week Cash Flow Report

Establish the Flash Report

Daily Cash Report

How to be a Wingman

External Analysis

Financial Statement Cheatsheet

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