Learn how to use Cash Flow Projections. 

A Cash Flow Projection is a chart containing educated guesses of your income and expenses, broken by month to month.  The expenses are projected in the months they actually occur — some of your expenses are the same each month (i.e., you internet fee and your loan payment) and some are occasional big expenses you must set aside money for, like your insurance premium or tax bill.  You create your income projections by taking an educated guess, based upon your marketing plans, your business history, and businesses similar to yours.  Yes, it's just a guess — but it's a place to start so you can measure your actual results against some projected numbers.   

Using this chart you can predict not just if you are making a profit or loss each month, but if you are going to run out of cash, need additional funding, or if you need to scrap your entire product line or business. 

When you first create your projections, you may find that even in the best case scenario, your business is not going to make enough money.  Perhaps your expenses are too high, you don't have enough funding, or you prices are too low.  You may also find that a business is not worth it.  When creating the 2008 cash flow projections for my personal financial planning business, I realized that since I was cutting my hours on that business to spend more time on Grow Up! Strategies, the business was not going to make enough money.  Most of its expenses are fixed, regardless of whether I have 1 client or 1000.  As such, if I had just ¼ of the clients as last year, the business barely broke even.  I made a decision to stop seeing new clients, simplify the practice, and cut costs. 

Each month you can compare your actual income & expenses with your projections and make adjustments to your future projections, based upon your real data.  You may learn that your expenses were more than expected, your clients are not paying on time, or your business is growing faster than planned (and you need to add additional staff to absorb the work).  Not only do you adjust your projections, but you use the information to make decisions about your expenses, collections, marketing plans, and staffing.

If it seems overwhelming to create an annual plan, just do cash flow projections for one quarter.  You may even choose to do projections just for one product or service line.  The most important factor is to get started somewhere and set aside time in your monthly Money Meeting to evaluate & troubleshoot your cash flow — so you never are surprised by the status of your bank account!