How to build a simple cash flow

Cash flow is the record of the money that comes into and goes out of the business, with dates. It sounds basic, and it is. But Sebrae surveys point to a lack of financial planning and cash control as one of the main reasons micro and small businesses close. Profit on paper doesn't pay a bill; money in the account does. Cash flow shows the difference.

The practical path

1. Separate the company's account from yours. Without that, no control works. If you don't have a business account yet, open one; many are free for MEIs.
2. Set up a sheet with four columns. Date, description, money in, money out. It can be on paper, in Excel, in Google Sheets or in Sebrae's free spreadsheet. The format matters less than the discipline.
3. Record everything, every day or every week. Including the coffee and the card machine fee. What escapes the record is exactly what disappears.
4. Record by the date the money actually moves. A card sale in three installments comes in on three different dates, not on the date of the sale. This is the most common mistake.
5. Project the next 13 weeks. On another tab, write what you expect to receive and pay in each of the next 13 weeks (one quarter). Add it up week by week. Wherever the projected balance goes negative, you have a problem announced in advance, and time to act.
6. Act before the red. Speed up collections, negotiate terms with suppliers, postpone nonessential purchases, run a promotion to move inventory. A decision made three weeks ahead costs much less than one made on the day.
7. Review every week. Compare the forecast with what actually happened. The difference teaches you where you're too optimistic.
8. Set aside three reserves. Taxes (which are no longer yours), the owner's draw and an emergency reserve for the company.

Cash flow is not the same as profit. A company can make a profit on paper and run out of money, because it sold on credit and hasn't been paid yet. And it can have money in the account and be losing money, because it was paid in advance for something that will still cost. The two controls complement each other; start with cash, which is what decides whether you pay the bills on Friday.

How Bairo went through it

Bairo Leandro Gonzalez Martinez knows what happens when the money you were expecting doesn't arrive. After building up capital with events and digital printing, he put it into a company as an investing partner. The business was not what it seemed and didn't hold. He says he went broke there, with many people depending on him.

The lesson he carries from that phase is the measure he still uses today: time. How long does the money last? How many people depend on it? The sentence that sums up his story, "every no is the ground of a yes," began to be written there, at the point where the cash ran out and he had to decide what to do with what was left.

The Method step

This is the central tool of step 5 of the Seventh Attempt Method: count in lifetime. Build the cash flow for the next 13 weeks today, divide the balance by your average spending and find out your runway in weeks. Write down your red line. Once it's on paper, you stop making decisions in a panic.

Discover the Seventh Attempt Method

Read also

• What is working capital?
• How to separate personal money from the company's
• My company is in debt: what do I do?
• Fifty lives