UNDERSTANDING BUSINESS LIQUIDITY: The 13-Week Cash Projection

Entrepreneurs embark upon a business because they have a passion for delivering a specific product or service to the marketplace. With sufficient funds at startup, a business owner may not develop a true understanding of liquidity until the startup capital is consumed and the business needs to become self-sufficient.  A self-sufficient business is one that can successfully leverage its assets or convert those assets to cash at a rate greater than the rate at which the business is consuming cash.  While cash conversion cycles can be sporadic or cyclical, it is important for business owners to project forward their cash generation and cash consumption to identify potential pinch points before they occur.  The ideal tool for this near term liquidity analysis is a 13-Week Cash Projection.

The 13-Week Cash Projection is commonly used in businesses with complicated cash flows and where active cash management is critical. Done weekly, this model will project cash flow expectations into the coming weeks, by looking at cash inflow and outflow in all key areas, starting with the beginning cash balances, estimated cash receipts from customers, estimated payroll and taxes, estimated operating expenses, note/lease payments, interest payments on a line of credit and payments to vendors.  As part of this weekly process it is helpful to complete a variance analysis, reviewing actuals against the prior week forecast. The 13 Week Cash Projection should serve as a tool to see how much cash is required on a forward rolling basis, letting you know when an added impetus to collect cash and/or to generate revenue is necessary.

Legacy Consulting, LLC has the passion and experience necessary to be a one-stop-shop for entrepreneurs.  We can provide the support necessary to understand and forecast the cash needs of your business.  With over 20 years’ industry experience,  Legacy Consulting can be the single greatest factor contributing to the success of your business.

Contact a Trusted Advisor, someone who understands your business, that can help determine what is necessary to not only survive, but thrive.  Legacy Consulting can be at your disposal 24/7 to help you see the future of the business and help instill the discipline today to achieve the ultimate goal tomorrow.  Visit http://www.legacy-consultingpartners.com to see how we can help your business.

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