Uncertainty and the variety of potential developments is the challenge in preparing a 13 Week Cash Flow statement. But this task has some easy parts too. The first step is to forecast known revenue and costs – outstanding invoices, work in progress, and new work from proposals already submitted. This part of the process has three steps.
1. Invoices: Identify the invoiced amounts you have not received yet. Note how much you expect to receive in each week.
2. Work in Progress: How much will you invoice for this work in progress? When will you send the invoice, and how much later will the cash payment be received? Your revenue is booked when the invoice is sent, and this shows up on the “income statement” or “P&L Report”. But for a cash flow statement, the important date (or week) is when the cash comes in. You cannot pay a vendor with booked revenue! You need cash.
This timing difference between invoice and receipt of cash is the most important difference between the income statement and the cash flow statement.
If you expect to pay out additional cash to complete this work in progress, be sure to add that additional expense to your predicted cash outflow for the coming weeks. Use separate lines (rows) in your spreadsheet to show the costs for work in progress separate from the costs of new work you have not started yet.
The typical rows would be materials, labor, and subcontractor expenses, any unusual shipping or packaging expenses, and any sales commissions. These are called “variable costs” or “costs of goods sold (COGS).”
3. Known Future Work: You may have already made a bid or proposal, or you intend to. This should be a third set of rows in your spreadsheet. For each of these jobs, use a separate worksheet to estimate the revenue, costs, timing, and percent likelihood of getting the job. Then you can use a summary on your master spreadsheet.
For this future work, you will need to make some realistic estimates. When will the customer decide? Should you assume he will take the price you bid, or will you need to come down a bit? When will you order supplies and when will you have to pay cash for them? When will you complete the job and invoice it, and when will you receive cash from the customer? If there are “progress payments” along the way, how much and when?
What are your chances for getting each of these jobs? You will multiply each of the revenue and cost figures by this “probability percentage” estimate, making your forecast a more realistic view of the prospects for the business.
Next you will estimate business as yet unknown. We’ll cover that in the next post. At this point you know the format of the 13 week cash flow statement, you forecasted the revenue and costs for outstanding invoices, work in progress, and likely new work you already know about.
Tom Gray helps owners save and grow their companies. He is a management consultant focused on small business and telecom, a Certified Turnaround Professional (CTP), and a SCORE Mentor. He can be reached at 630-512-0406 or firstname.lastname@example.org. For information on the scope of Tom’s activities, see www.tom-gray.com. For more on SCORE services, see www.scorefoxvalley.org.13 Week Cash Flow Statement, Small Business Techniques
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