Back September 8, 2016

How to Organize Your Cash Plan

With our cash flow tool up and running, let’s see how you can start with the management of your cash plan, so it can continue as a smooth process.

Maybe you are not the kind of entrepreneur who is mad about order and discipline. That is perfectly all right, most creative people aren’t and most entrepreneurs are creative people. It does make some sense, doesn’t it? In order to manage your company’s cash flow in an efficient way, however, and to put as few effort in it as possible, you do need some rigor to start with.

The first step when you start a cash plan, no matter the tool (but hopefully the ThinkOut platform) is to organize the cash ins and outs. Specifically, name each row according to the kind of transaction you will follow over the time. Two categories will be there for sure: the Income and the Expenses. Under each of these two, you can add as many as you feel comfortable with. It is preferable to go as much in detail as possible; not only it is easier to introduce values separately rather than summing up, but it will also help you to better understand where those values come from.

The Income category

This is the most conveniently one to organize. You just think about your business’ revenue stream and name the subcategories accordingly. For instance: Product A, Product B or Project A, Project B, Service A, Service B. Another way to organize revenue is by Client name. It is suited for project-based companies especially, who face time gaps between invoicing and cashing in. This kind of categorizing helps to keep a good track of the payments. On the long run, you can see which clients pay on time, which should pay faster and where you need to renegotiate payment terms.

The Expenses category

Here you have more alternatives. You can either follow the cost-focused approach: Fixed and Variable Costs and go in detail for each of these sub-categories. Or you can skip this and put your expenses straight down in: Salaries, Office, Transportation, Raw materials or Suppliers Taxes etc. For office related expenses, you can go even further into detail: Rent, Electricity, Cleaning, Logistics, Security, the Internet etc. If you constantly work with certain suppliers, it may be useful to detail expenses by supplier name. This way you can see clearly when each payment is due. In case you face a cash flow gap (the sum that you lack to get back on a positive cash flow once you run out of money), you get to see which payment should be delayed and the suppliers you need to talk with, until the next cashing in.

It’s nothing complicated, really. Just browse through your bills and invoices and see how revenue is perceived and expenses are paid. Then put those categories into the cash plan and you’re good to go. Just like you would organize your stuff into boxes before moving out; you’d like to know where that toothbrush is hiding, wouldn’t you? Not to mention the coffee maker early in the morning.