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Hey, I got a question for you. Are you ready for this? How long could you survive without oxygen? Not long, right? Well, same is true with cash in your business. You got to have it and you absolutely need it. In today’s video, we’re going to be talking about how to create a super accurate projected cashflow statement in minutes that would let you see your cash position up to six months in advance. How cool is that? Let’s go.

Hey everybody. Welcome to Seven Figures and Beyond. I am your host, Leo Landaverde. I’m an author, business coach and CFO, and I’m on a mission to help business owners scale their businesses quickly to seven figures and beyond, while maximizing profit and maximizing the value of their business for a future pay day. Let’s do this. If you’re ready to grow your business to seven figures and beyond while creating the financial freedom and the lifestyle that you want, then subscribe to this channel and don’t forget to hit the bell so you’re notified every time a new video comes out. Thank you so much.

Hey, everybody. In today’s video, I will be showing you how to create a super accurate projected cashflow statement that would let us look ahead up to 12 months in advance based on certain assumptions that we’ll be making throughout the video. Now, I am a CFO, an outsource CFO to know what middle market companies. So these aren’t companies between $1 and $20 million in annual sales. So as a CFO, as a preamble to this video, we worry about two things. We worry about risk and cash. Do we have enough insurance and systems and procedures to protect us against the risk? Second, do we have enough cash to make sure that we’re fiscally viable?

Cash is like oxygen in a business. You run out of cash, you run out oxygen, you won’t be around very long. So this is a very critical, I cannot stay enough how important this tool is for your business and that I’m hoping that you can or you should be able to after this video have a better understanding of what a projected cashflow statement is. So what I’ll do is I’ll walk you through certain assumptions of what this tool is and how it works and then we’ll make some assumptions and you’re going to see how the numbers change based on that. So right now, we begin with the very, the first position, we begin with the cash on hand. Cash on hand is the very first thing that we look at. How much cash do we have in the bank?

By the way, this is a rolling cash forecast, which means that even though we’re starting in January and we’re ending in January 21, we could be starting in April. We could be starting in May and it projects 13 months ahead. So that in template, in this Excel sheet, which I’m actually working through Google sheets, it changes. So for the sake of this video, we’re starting in January 20 because we are in January 20. We’re going to project 13 months ahead. We begin with a cash on hand and and then it adds all of the collections that we’re going to be receiving throughout the month of January.

Now, let me tell you what a cashflow statement is NOT. A cashflow statement, it’s not an income statement. We’re not going to be… Because if you’re running an income statement and if you’re a company, and you come into $1 million in sales, we pretty well want to be running the business on an accrual basis, which means that you’re going to be recognizing that revenue. You’re going to be creating invoices for clients that you may or may not collect during the month of January. This is collections, that’s what it says collections from accounts receivable. What an income statement looks at is it recognizes all of the income that is coming in in any given month that you are recognizing whether you get paid or not, and the expenses in an income statement are expenses that you’re going to incur throughout the month, whether you pay them or not. It doesn’t really involve cash as much as a cashflow statement does.

So at the outset, these are collections. So for the sake of this video and to keep it simple, if everything plays out that way in a perfect world, you’re going to be collected for this case $100,000 a month over 12 months, which means that we’re going to be collecting $1.2 million. Now perhaps there was $1.5 million in sales, but we only collected $1.2 million. So I want to keep this a very basic, very simple. If we begin with $25,000 worth of cash in the bank and all the revenue assumptions, the collection assumptions, it’s correct, we’re going to end up with a cash position $440,000, which means there’s a net increase of 415,000 from money that we didn’t have and we have at the end of the period, the cycle, which is 13 months, 12 months in this case.

So let’s kind of move down. So I told you about this is the cash on hand. This is the collections for that month, which gives us a total cash receipts. There may be other cash sales and it changes the number. So say we were to collect $10,000, money that were not in addition to the collections from A/R, then it would change the beginning cash for the next month. But we’re going to keep it simple for right now.

Now purchases, this particular company right now is a fictitious company. We’d call it ABC Company LLC. Keep in mind that is an LLC, I’ll explain what that is later, but it has an assumption that 25% of the money that was collected is tied to cost of goods sold, which is a variable cost. So it takes us $25,000 to support $100,000. So say you bought, you’re creating a product or service that takes you $25 to produce and you sell it for $100. So there is a difference. So 25% is the cost of the sale and which gives us a 75% gross profit.

By using this projected cash for statement, one of my clients was able to literally save his company because for the first time he was able to anticipate cash needs months in advance in his highly seasonal industry.

But we’re not talking… This is not an income statement. So let’s move on. So we’re assuming that it costs us $25,000 to collect $100,000 and then you got… Some of this is going to be reminiscent of the income statement. You have the automobile expenses. This is cash that we’re using every month. So we’re going to have some automobile expenses. We got some bank charges, service charges. There’s no sales tax, it’s here, but sales tax is… There are no sales tax involved for this particular scenario so not using it. They’re not charitable contributions. I think as a business, you should give of the wealth that you’re receiving, and it is after all an expense that you can actually deduct, so long as it’s a bonafide a charitable contribution.

We are using for the sake of the example $250 a month in computer and internet expense. It’s not far off. You’re going to have some outside consultants helping you, say we have a $500 a month budgeted. Contract labor, the laws have changed dramatically from 2019 to 2020 as far as, particularly in the State of California, as far as who can be an independent contractor versus a W2 employee. So you got to understand your state or province’s laws, the laws apply to where you work, where you have your business, where you’re domiciled, making sure you adhere to those laws. But for the sake of this, we are spending $1,000 in contract labor a month to support the revenue that is coming in.

We’re not offering any health benefits at this at this point. We have insurance expense, absolutely. Remember what I said, my number one job is make sure that we have risk protected and we have enough cash coming in. So it will be powerful course to have enough insurance and this is general liability, professional liability, errors and omissions, directors and officers, any insurance that protects the business should something happen. We expect the best case scenario, we plan for the worst. Then you have some internet expenses. This is internet access, this is bonded T1 cable, whatever you need for internet. We are spending money in marketing, $3,500 a month. We are saying that we’re going to have $600 worth of meals and entertainment that are, there’s always going to be some miscellaneous stuff that you don’t know how to categorize anywhere else. We’re going to throw it in here.

Office supplies, $750. $20,000 a month of payroll, and that is inclusive of payroll taxes, which can average anywhere from 8% to 12% and depending on how long you’ve been in business, so it would be 8% to 12% or whatever the payroll is. That’s an employer related expense. You got postage and delivery. You got accounting fees. I’m assuming for this, is that you’re outsourcing the bookkeeping, you got legal fees. You got to have a couple of really good advisors working, helping you. I am a CFO. I’m usually one of the advisors working with the CEO, but there may be lawyers, you get what you pay for. You don’t have a lawyer and you don’t have a good contract, you may have exposure, which means you have risk. Your books are not in order. You’re not going to be able to get financing. You’re not going to have your book straight. You may have problems with filing your tax returns, et cetera.

We’re budgeting here rent, $1500 a month. Repairs and maintenance, $100. Telephone expense, $1,090, just a kind of a random number. You are going to trade shows, you are traveling, you are out there trying to generate leads for your business, so you are traveling. So we’re budgeting $1,000. We say we’re going to is spending $1,000. So at the end of this exercise, there is $60,000 that is being spent every month. Right now, we’re not… I think it’s important to understand, the first part of this tool, of this template, a lot of the information comes from the income statement, from the profit and loss, which is also called profit and loss.

The second portion comes from the balance sheet. So your loan principal payment, it’s so if you have a loan in your business, there’s going to be an interest portion and it’s going to be a principal portion. The interest portion goes in the… It goes out on top as an expense which would go right here. But because there’s no loan, there’s no interest expense. The principal expense is a balance sheet transaction. So it will go here. Any capital purchases, we have zero right now. I’m going to show you in a few minutes what it does, if you were to make some investments. Remember what I said earlier, this is an LLC, which means that unless the treatment on the tax side is as an S-corp, you cannot have a salary. Why would you have an LLC versus a corporation? That’s a conversation for another video. I’m not going to get into that right now. Only to say that as an LLC, you as an owner take money out as a withdrawal, as a member distribution. So for the sake of this exercise, it’s $5,000 a month that you’re pulling out, which is $60,000 in cash the business is paying.

After all of that, we begin with $25,000 in our bank account. We add $100,000 worth of collections. It gives us, now, we have cash in, cash receipts or cash available of $125,000. We spend throughout the month of January $60,000 in expenses and then you take $5,000 as an owner, which you should pay yourself. Otherwise, you have a very expensive hobby. Your goal should be making money. Then we paid out $65,000. Our cash position at the end of the month is going to be $60,000. Why? Because we take the money that we collected, so cash available minus our cash paid out. So cash in minus cash out will yield $60,000. The ending balance of the first month becomes the beginning balance of the next month, which becomes… So what you see here on top is that beginning balances.

So it’s really cool to see, the goal in this exercise as we are in the black. Now for the purposes of this, this company is doing very well because we started with $25,000 in cash available and we have $420,000 at the end of the period. So hopefully that makes sense. I’ll walk you through the assumptions. Now let’s have some fun and see what happens if we make certain changes. So say you did not collect $100,000, it wasn’t linear, it wasn’t predictable. So as it always is with cash collections, they vary and they change from month to month. So say you did not collect $100,000 but rather you collected only $60,000. So you noticed that our beginning balance now is 30,000 and this month you only collected $45,000, right? That is what you collected. You may have more accounts receivable, but that’s what you only collected.

Notice what it’s done, it’s changing our cash projections. So we went from $420 to 348. We haven’t changed anything else. But then we’re saying that this month was only $50,000, this month was only 25,000, it was a very bad month, right? But we are still doing well. So now rather than collecting $1.2 million, we’re down to 980,000. In November, it was an okay month. We did $45,000, so we’re now $925,000. Now, that’s on the cash in, cash coming inside. Now say, notice that this is because your cost of goods sold is a variable cost so it changes according to the collections for the sake of this. Automobile expenses stays the same, but then you say you wanted to hire a couple more people to kind of help, you’re building your team, you got to get the right people on the bus and then you make some hires.

So your payroll goes up in April by $10,000. So we’re now at $30,000 but then that stays throughout the period. Now we have your payroll when from 240k to 330k. So there’s been an increase in cash. So you notice that we’re still okay, we’re still on the plus side of cash. We started with 25, we are now to 123 net cash in. Say that you know what, you need some more money, you need to take some more money out in June, or actually July, you decided that you needed to take $7,500 per month as a draw. We’re going to carry that through the end of the year or through December. Now we’re still looking good, right? It’s a viable business. We are not in the red at any point in time. But see what happens if you wanted to make any investments.

So think about it. Right now we have cash coming in and we’re spending cash, but we’re not investing. We’re not purchasing equipment, we’re not doing anything. We’re not adding assets to the business. But say we were to do a capital purchase and you wanted to buy, say you are a restaurant and you needed to buy a piece of equipment for your kitchen that you got to have now and say you spend $75,000 here. But then there were some other additional expenses that came out here and you could buy some things. Then there was another major expense that you had. Now we’re in the red.

The goal, as I said at the outset of this video, is to understand what your cashflow will be far into the future. You don’t want to know a month from now that you’re out of cash. You want to have… This report, this tool allows you to be a scout for your business. Look ahead as far into the future as you can to know when you’re going to be in the red and then plan accordingly. So for this case, now we know that, we know in January that if everything plays out according to what we have, we’re going to be down. So we’re going to need some cash in to the bank. So how do you mitigate that?

Well, what if we were to get a loan somewhere in here? Now we’re going to be spending $130,000 but we know that ahead and we know that our cash coming in is not going to support this so you have to get a loan and you get $130,000 loan coming in, right? Our of cash position is back the way, but you know what happens when you get a loan? You make payments and you have interest payments and principle payments. What you’re going to have in October, so you’re paying, I’m just using simple numbers, $1,000 worth of interest, which becomes your interest expense that we didn’t have before, but we also have a payment. We have a principal payment. Now we’re making this. When does that happen? In October. In October, now I have to budget for a principle payment and we’re going to say that that principal payment is, this is a short term loan, it’s $5,000, okay?

Now I hope you understand how that works now. The whole goal of this exercise is to know what our cash on hand is going to be at the beginning of every month so we can plan accordingly. You can make changes as you go on the fly. This is a living document. This is a projected cashflow statement. It’s not meant to be as a tool that you use every day. For that, there are other reports that are 13-week cash flow forecasts, which is of one-quarter. You can go to 26 weeks and then you’re actually looking at your cash on a weekly basis. When I get involved in engagements working with clients throughout the country, they can be at different situations. Cash may be a big problem if we’re trying to conserve cash, so we go from a monthly to a weekly.

I think that covers it all. Please comment below and let me know if any of this was useful to you and what you can do. Definitely, I would like to have this template. This is something that, it’s a tool in my tool belt that I use literally every day. My staff uses it every day. We have the responsibility when we are engaged to watch your cash, to help you grow, but do it in a way that is not going to hurt you.

Please comment below and let me know if this forecasting tool will be simple enough for you to use or type yes if you think you will use this template if you had it. For a period of time, I am giving away my rolling cashflow template. It’s a tool I use every day and has been instrumental in saving the life of many of my clients. This is my gift to you. Feel free to download it by clicking on the link below. Also, if you want to join a community of like-minded successful entrepreneurs just like you, then join our Facebook group at the link below where I share tips, tactics, and strategies on how my clients are growing their businesses to seven figures and beyond.

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