6 Steps to Manage Your Cashflow

Cash is King. As is the case with many businesses, at CollegePlus we experience a significant seasonality in our cash flow. Since we are an educational company, much of our revenue comes in the fall as new students sign up for our services. It is important for us to be able to understand our cash flows throughout the year in order to ensure sufficient liquidity for our low point in the year. This seasonality is not unique to the education industry but is experienced in agriculture, accounting firms, department stores, landscaping firms, and many other industries.


The following are some basic principles of cash flow management:

  1. Know Your Nut – Your monthly nut can be defined as the amount of cash going out the door each month assuming no new sales. For example, for a landscaper, the monthly nut would include equipment payments, salaried/full-time employees, insurance, and other monthly expenses that are independent of new sales. The nut would not include part time/seasonal help, gasoline, oil, supplies, or other costs of service that are only expended when work is available. While each business is different, a good rule of thumb is to always have six months cash, lines of credit, etc on hand.

  2. Create an annual budget – I can’t emphasize how critical it is to create a budget. Without one, there is no way you will be able to accurately predict your cash flow needs, convince a banker to loan you money, or move forward with confidence as you grow your business. If budgets aren’t your thing, find a CPA or and analytically minded friend to help you out. This will get easier as the years go by and you have a track record to look back on.

  3. Get Real – When you set up your budget and your cash flow plan, put away the optimism. Always budget your revenues low and your expenses high to make sure that any surprises will be to your advantage.

  4. Set up a line of credit – It is important that you establish a line of credit and a relationship with a banker before you need it. If you wait until you need it, often times it is too late. Start with small local banks and credit unions. Leverage your network and existing relationships.

  5. Track Actuals – Each month, analyze how close your actual financials are tracking with budget. This trending will help you know how to adjust your expectations moving forward.

  6. Have a contingency plan – What happens when you lose your biggest client and your revenues decline by 20%? What if the cost of a key input doubles? These are not fun scenarios to think about but if you have ever lived through anything similar, you will agree as to the importance of contingency planning. This is not just a thinking exercise. Actually write out a plan outlining what you will do to cut costs if the unthinkable occurs. Typically, you will want to lay this out in several stages that have accompanying trigger points.

The list above is certainly not comprehensive. What have you found to be helpful in managing your cashflow? Comment below and share your ideas with the rest of us. If you have questions, I’ll do my best to reply.


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