During the first few years of your new franchise, liquidity will be king. It will seem that more money is going out from the business than is coming in and the last thing you’ll want to do is to sit down and formally analyze your negative cash flow. You will need to be an excellent bookkeeper, however, if you want to stay on top of your business, make sure that you can pay your bills every month. In addition, if you have prepared a detailed and ongoing cash flow spreadsheet, you’ll be able to present this document to your bank loan officer to give proof that you are on top of things and indicate when you will be able to pay them back.

A good understanding of your cash flow starts with creating a spreadsheet. There are two main categories here, Cash flow in, and cash flow out. In a column labeled “cash flow in” you’ll want to list any financial items that are producing income such as; this month’s gross sales, payments made to you on sales where you have granted credit, any loans you may have secured and deposited that month, and other financial accounts that have paid interest or dividends to your business. Add these categories up to arrive at a total for all of your “cash flow in.”

Now for the hard part. In the next grouping of categories, you’ll list all the sources of expenses for your business. Rent, bills, salaries, inventory, assets purchased, sales tax, and other expenses need to be recorded and tallied. Then simply compare the cash in versus the cash out to get an idea where you might be spending too much money. This number is your net monthly cash flow.

This is a simplified money management blog post that will get you thinking about how critical it is that you are a good bookkeeper and record your every cash flow item carefully. You will have a renewed sense of being in control when you have listed and understand exactly where your money is coming from and where it is going.