This is an eloquent argument for good business

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Unformatted text preview: business plan cash flow for 12 months, given standard assumptions for sales, costs, expenses, profits, and cash management. The sample company is profitable and growing. It sells about $6 million annually, produces about eight percent net profit on sales, and is self supporting. The chart shows a 12-month projection of AMT cash resources. CHAPTER 14: ABOUT BUSINESS NUMBERS AS THE 14.9 CASH CASE STARTS With the first take of the cash case, the business looks good and the cash plan is acceptable. The light gray (or green if you are viewing this in pdf or online) colored bars represent the checkbook balance at the end of each month, and the dark bars (red) represent the cash flow, which is how much the balance changes in a month. The first set of bars should never drop below zero, because if your checkbook balance is less than zero, then you are bouncing checks. The mathematics don’t care, but the banks do. Cash flow simply tells us how much cash is coming into or flowing out of the business over a particular period. The cash flow bars, on the other hand, can drop below zero without major problems, as long as the balance stays above zero. For example, in this case the company’s projected cash flow is negative in January, May, July, October and November. The light gray bar stays positive, but the dark one is negative. In the illustration on the next page, only one assumption has changed: that same company now waits an extra month, on average, to receive money from customers on invoices presented. The average wait, which is called “collection days,” goes from 60 days to 90 days. The impact on the company’s cash position at the end of the year is about half a million dollars, from about $400,000 positive (in the Cash Case Starts illustration) to more than $150,000 negative in this second chart. Nothing else changes — no new employees, no change in costs, no additional expenses. By the way, accountants call money owed by customers “Accounts Receivable.” 14.10 HURDLE: THE BOOK ON BUSINESS PLANNING CHANGING...
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This note was uploaded on 01/26/2014 for the course BUINESS 102 taught by Professor Unknown during the Winter '09 term at University of Phoenix.

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