The Illusion of Financial Health

Once upon a time, in the kingdom of far far away, not too far from Shrek’s lair, there was a thriving boutique called Bella’s Blooms that sold exotic flowers. Bella, the owner, believed her business was flourishing because the bank account always looked healthy. She didn’t see the need for forecasting cash flow. Bella had a number of corporate accounts that were billed periodically, as well as a steady stream of walk-in flower lovers.

Buoyed by her success, she never felt the need for cash flow. Her bookkeeper reconciled her numbers quarterly, because she was told that was better than just throwing numbers together once a year for taxes. She never looked at her financials because she didn’t understand the presentation of numbers and she didn’t want to ask her bookkeeper to explain them for the third time. Having a bookkeeper gave her a sense of security. Honestly, life was stressful enough, she didn’t want to deal with something that wasn’t broken. The orders needed her creativity, and there were always fires to put out.


A Missed Opportunity and a Wake-Up Call

One day, Bella learned that not understanding cash flow forecasting hurt the growth of her business. Bella received a large urgent order from a high-profile event planning company that she had been courting for months. She was elated. Bella accepted the order excitedly, without a second thought. But when she reached out to her suppliers and priced the order out, she realized that despite having money in her bank account, she couldn’t afford to place the order. Most of her balance was already allocated to other expenses – payroll was coming up, her credit card payment was due in a few days, vendors needed payment as well. Meanwhile, her corporate customers were paying their monthly bills later and later, some were 2 months behind. There was a mismatch in timing between cash in and cash out that wasn’t obvious to her until it was too late. Bella didn’t have enough cash to pay for the new inventory upfront. Confused and distraught Bella had to turn down the order.


Cash Flow Forecasting Basics

This incident was a wake-up call. She realized that just having money in the bank wasn’t enough; understanding when and how that money would be used was crucial. She had to allocate some of her time to the finances of her business. Determined to prevent such a mishap from happening again, Bella took the following steps:

1.     Cash In Forecasting: She started by projecting her future sales based on past trends, current orders, and expected new clients. She then mapped out these projections with the schedule of when she expected to receive payments.

2.     Cash Out Planning: Bella listed all her regular expenses, like rent, salaries, contractors, and utilities, and mapped out when they were due.

3.     Cash Flow Tracking: Bella decided to track her cash flow. She created a spreadsheet in Excel.

4.     Filling the Gaps with Credit: Bella called her bank and started the process of opening a credit line.

5.     Addressing Late Payments: She set up late payment reminders on her customer bills and followed up with a call whenever the payments were more than 10 days late.


Using Excel for Cash Flow Tracking

Here’s how Bella tracked cash in Excel:

1.      She set up columns for each month of the year and added “Beginning Cash Balance” as the top row. The bottom row would be the Ending Cash Balance for the month. Her current cash balance went into the first row of the first column.

2.      Bella added new rows between beginning and ending cash and plugged into the right months all upcoming cash outflows related to bills she already had in hand, and all expected payments on outstanding bills on corporate accounts. In accrual accounting performed timely, these would be tracked with accounts payable and accounts receivable balances on the balance sheet, but Bella’s financials were still on a cash basis so she had to account for these manually.

3.      Then, Bella plugged in all expected cash inflows from sales and outflows from expenses that she had mapped out in additional rows, into the right months.

4.      For each month, she started with the beginning balance, deducted the total outflows, added the inflows, and netted to her ending cash flow.


With this new system in place, Bella was able to see when her bank balance would be at risk and see how late payments from customers would affect it. She would also be able to plan for new client orders and never be caught off guard again. Bella’s Blooms would continue blossoming, and Bella learned an invaluable lesson: understanding and forecasting cash flow is just as important as making sales.

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