How Do I Pay My Bills?

Guest post by: Adam Sonnhalter
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How Do I Find Time To Plan? - By Adam Sonnhalter

This is a question many business owners are asking themselves these days. While the trials and tribulations of many of the bigger companies have been well documented these past couple of months, chances are the government is not going to be writing any checks into your business to provide liquidity in the near future.

So what's a small business owner to do? The short answer is to focus on the future. Can you see a future where you are making enough money to pay all of your bills?

One of the things we implement with nearly all of our business coaching clients is what we call a 90-day cash flow projection. The idea behind this is to be able to forecast a positive cash balance for the next 90-days (i.e. 3 months).

While this may not enable you to pay ALL the bills you'd like to pay, at least you'll have a better sense for when you'll be able to pay them. This means you won't have to make any more promises you aren't able to keep about payments to different vendors.

Most business owners already have some version of this 90-day cash forecast in place. For most people, it's filed somewhere in their head! For others, they'll look at a combination of a Collections Report to tell them who owes them money and then an Overdue Vendor report to tell them who they owe money to.

These are the basic building blocks of the 90-day cash flow forecast. At its core, it allows you to see the cash inflows and outflows on a daily basis for the next 90 days. Imagine how well you'll sleep knowing that you will have positive cash for the next 3 months!

If for some reason you show some negative numbers (and in these times most businesses will show some negative numbers), at least you'll have a few days, weeks, or months to respond to it. That sure beats your bookkeeper telling you first thing in the morning that "hey boss, we're out of money in the checking account." Chances are you won't make your best decisions in the heat of the battle.

So where do you start? Pull together the following information:

1. A list of all the people who owe you money. Print out your Aged Accounts Receivable report from your accounting system. Take a read through and make sure that everyone who is supposed to be on this list is actually on the list.
2. A list of all the people you owe money to. Print our your Aged Accounts Payable report and any other debt schedules you may have. Don't have these? Don't worry. If you owe someone money, they'll let you know at some point in the next month. People are funny that way!
3. A list of your projected sales/revenue backlog. This is your best guess for who will be buying your products or services over the next several months. These are things that haven't been billed yet, and thus won't show up on your Aged Accounts Receivable report.
4. A list of any other projected cash outlays. In case you are not running all of your cash payments through your Accounts Payable (and chances are you are not), you'll want to make sure you have a list of what is expected to be paid out over the next couple of months. This should include some of those quarterly or semi-annual payments (e.g. workers' comp, insurance) as well as the more regular payments (e.g. payroll, rent).

Once you have these documents in hand, you're ready to begin listing them out. I prefer to use an Excel spreadsheet to lay out this information with the days of the month across the top for column headings and the cash in and cash out items listed on the left side of the page in various rows. You may prefer to do it by hand.

Start with your beginning cash balance today. Add all of your projected cash inflows. Subtract all of your projected cash outflows. The result will be your cash balance at the end of the day. How are we doing so far? Is the cash balance still positive? If so, move on to tomorrow and do the same thing.

A good place to start is one week at a time. Try to get the cash balance to be positive for the next week first and then worry about the remaining weeks and months after that. For instance, if you show a negative cash balance at the end of business tomorrow, you have a couple of choice:

1. You can see if you can collect some Accounts Receivable sooner by calling folks who owe you money this week to see if payment can be moved up to today or tomorrow.
2. You can always make some more sales today!
3. You can call one of your vendors who will give you some flexibility to pay in a couple of days instead of today or tomorrow to buy yourself some more time.
4. You can draw down on a line of credit or invest more of your own money into the business to cover the shortfall.

As you might guess, we're not too fond of #4 unless you can demonstrate how you will pay that money back to the bank or yourself within a very short time frame. If you can't realistically show how it will be paid back in the near term, chances are it won't be paid back and that would just be digging yourself into a deeper hole.

This cash flow report should become the most important management tool in your business that not only your are using, but that your key people are using as well. Remember, if you can't show positive cash on paper, chances are slim you'll be able to do it in real life!

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How Do I Find Time To Plan? - By Adam Sonnhalter

About the Author: Adam Sonnhalter

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Adam Sonnhalter is a Partner of Maximum Value Partners, a business coaching firm based in Northeast Ohio that works with companies across the U.S. with anywhere from 1-25 employees. Adam has been involved in professional services his entire career including nearly a decade on Wall Street as an Investment Banker helping people buy and sell companies as well as raise money for their companies. Adam grew up with an entrepreneur at the dinner table and has been advising business owners for well over a decade. Adam's partner in MVP is Jack Mencini. Jack has personally owned and operated several companies, 5 of which he bought and subsequently sold, the others were started from scratch, including MVP and one that made the Weatherhead 100 list of fastest growing companies in Northeast Ohio. All of this came after 17 years working for a couple of large public companies in Northeast Ohio that exposed him to business throughout the world. We currently work with companies throughout the U.S. either in person or virtually. More information is available about Adam and Jack and their business coaching at the MVP web site www.maximumvp.com and their blog www.AskTheBizCoaches.com .
Click here to visit Adam's website.

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