Virtually done before you start hurdle the book 172

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Unformatted text preview: e in liabilities increases cash. A decrease in liabilities decreases cash. These two principles lead eventually to the impact of receivables, inventory, and payables. As you look at your assumptions for the cash flow, keep in mind that every extra dollar of receivables or inventory as assets is a dollar that you don’t have in your cash balance. Every dollar in payables is a dollar that you have in cash, too. Although this simple cash model doesn’t show the critical impact as clearly as our examples in the previous chapter, the mathematics and financial principles are the same. Your business plan should help you develop a realistic cash estimate with mathematically and financially correct cash tables, in which all the key tables are linked to the cash flow correctly. Use the Cash Flow Chart as a Cash Pilot Every plan should have a monthly cash flow chart, which the computer draws from your cash flow table. The chart takes the data from the financial worksheet in the rows for net cash flow and cash balance. Use this chart as an illustration of your cash flow projection. As an example of how useful the cash chart can be, revisit the series of cash scenarios presented in Chapter 14: About Business Numbers. You can see how the estimated cash varies radically depending on critical assumptions for collections, payments, and inventory; and also how the cash chart shows you those variations instantly. When I am actually working with a business plan, I usually keep the cash chart visible as I change my assumptions. That way I know immediately when I need to revise numbers further because my cash balance is negative. CHAPTER 17: FINISH THE FINANCIALS If you’ve followed through with the cash plan, your financials are almost done. The balance sheet should be completed by the time you have a cash flow working. Business ratios should be almost automatic too, because they draw their information from tables you’ve already finished. The Balance Sheet I showed you some basic balance sheets in Chapter 14: About Business Number...
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