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Is Your Cash Flowing? | Freelance Sprout | Find, Start, and Grow Your Dream Freelance Business
Read the six part series on creating a freelance business plan
 

Is Your Cash Flowing?

Date May 9, 2008


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What is cash flow? Have you ever thought about how much your business brings in each month, how much goes out, and where the heck it all goes anyway?

Can a startup estimate cash flow with no historical data?

If you apply for a business loan, the bank wants to know your cash flow—startup or not. Lenders want to know that you can make the loan payment and still have something left over to pay your living expenses and mortgage.

But what if you don’t want or need a loan? A cash flow analysis can still help you get an excellent idea of how your business will progress.

One thing I like to do is envision what my business will look like when I reach certain income levels. At what point can I take a few weeks off and not have to worry about my entire business tanking?

The important point is to put some kind of “stick in the sand”. What this means is that it’s more important to get a starting number down and adjust from there. One good way to get that starting number is to determine your pricing structure.

In an earlier post, I discussed my startup worksheets. In that group of worksheets is a cash flow prediction calculator.

The purpose of this calculator is to help you put together realistic numbers to actually see how your business is going to “flow” from month to month. It forces you to think through critical issues like when you would be able to quit your job or maybe cut back on your regular work hours.

The important point is not to get an exact figure but to get a realistic figure. The mistake I make, more often than not, is being too optimistic.

Case in point. What if I don’t collect a dime of receivables one month? What about two months? Of course, you can’t account for all scenarios. Any business without consistent monthly cash flow will go down in flames sooner or later.

If you do download the worksheets, I’d appreciate any feedback!

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Related posts:

  1. Freelance Business Startup Worksheets
  2. How to Improve Cash Flow When You Are Self-Employed
  3. Does the Recession Affect Your Self-Employment?

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