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Hi,
I have recently finished my business plan that i intend to submit to banks for financing. There is a worrying factor though : I show positive cash flow but my monthly cash "in hand" is negative for a year or two. How will this be viewed by banks and potential investors?
Hi Cipher
You have not provided enough Information However are you showing positive cashflow from the P/L statement. If you are showing a difference between CashFlow and cash on hand you should prepare a source and use of funds to explain the difference to the banks. What are you using the cash for, Investments, repayment of debt??
Mike Janicki
You need to have enough cash to pay your bills. Are you paying your suppliers too early in your business plan. Can you cut costs?
However, if plugging the cash gap is why you are looking for investment then it's ok to show it before the investment is included.
If you have cash in hand negative than you have to check it again and do some changes in your payment process in your plan.
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Can you in any way evolve your forecast, so it won't show negative cash in hand?
As mentioned above, what are you using the cash for? Are your accounts receivable increasing? Is inventory? Are you buying fixed assets?
You indicate that cash flow is positive. Is that from operations? What are you doing with that cash that is being generated? If you’re paying for things that end up on the balance sheet, e.g., inventory, equipment, etc., you’re spending more that is being generated by operations. That’s okay. That is why you are approaching banks.
You forecast should hold cash at a constant, say $10,000, the balancing amount on the balance sheet will be the funds/line of credit that you are looking for. If you increase the cash to wipe out the negative balance, the other side of the transaction would be your loan.
The important thing is that at some point the cash being generated from operations is sufficient to service the interest and principle payments (assuming that you are talking about bank debt).
I hope this helps.
Thank you all for your responses. I will have a service business so there will be no initial inventory to buy. Expenses will be for mostly Marketing, setting up internet and paying it monthly as well as misc expenses like electricity etc.
I have cut some expenses by searching for alternative avenues for marketing (like producing my own fridge magnets with gloss stickers instead of getting them printed) and so on.
I have lost a lot of steam in the past month or so (due to my job mainly), and was starting to wonder if I am really an entrepreneur (aren't entrepreneurs supposed to be full steam at all times?). I ended up with the conclusion that I will be keeping my job and doing the business part time. It is what i wanted to avoid at all costs, but my sources of finance are null (with the recession, our banks here are tight fisted with loans).
Thank you
Try creating a month cash budget - this will show you and the bank where the actual cash is going monthly.
You have to change your payment process. Btter make a budget.
We've designed a web service at www.billstrust.com that is aimed at optimizing cash flow for businesses. It's a bill payment system that can pay any bill a business receives, so it accepts handwritten and printed bills and requires no data entry or no need to remember due dates.
The cash flow benefit is that businesses can choose to delay payments by X number of days when they know that they are getting lump sum payments but not have to juggle all the due dates of bills in their head. It's in essence a virtual accounts payable assistant without having to actually hire one and allows the business owner more time to focus on their business rather than mundane task of bill payment.
Best part is that the business owner receives an SMS message or email when bills are paid on their due date, keeping them in the loop. They can log in to their BillsTrust account and view all their bills in one place in a forward timeline of what is due in the future so they know their full liabilities.
Hope you find this helpful.
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