Cash Flow Planning is essential in maintaining a business. Cash is King. The objective in planning what revenue is coming in and what must be paid out in the same time frame is to help you establish some payment rules. This is Step 2 in our series of Cash Flow methods.
You want to be sure that you can handle the payments that come expectedly and unexpectedly. Insurance renewal is always a big payment, and if you hadn’t planned on when that payment would be due, you will be scrambling to find the money. Putting a payment on a credit card may buy you some time and get you some reward points, but it can’t hold out indefinitely.
When the insurance payments are done for the year, you get about three months before the renewal premium is due. Do you continue to put aside that payment, so that you will have a build up of cash, or do you find that you need to spend it on something else. We will always spend money if it is in our pocket and not assigned to anything.
When I was growing up, my Father used envelopes when he cashed his check and wrote on the outside of the envelope how much money needed to go in each pay period. He was very good at making sure the money was there. He was disciplined to keep the cash in the envelope. Now that might have worked for him, and I believe you need to be disciplined to do that, and I was not so fortunate. I would borrow the money from one of the envelopes, and somehow it would never get back in there. Even if I told myself it would. Then when the money was needed, I have to rob another envelope to pay the bill.
Having a plan and a savings or money market account will save you from taking out of an envelope when you shouldn’t. You will also get interest on the money in the money market account. I agree that it is not much right now, but it grows while you are sleeping.
Making a cash flow plan will enable you to see where you are headed. At RCM, that is what we provide in our 7 step Cash is King Process for ongoing companies. Our website is at http://rcmorganize.com
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