Masonry Magazine July 2001 Page. 28
PREPARING A CASH FLOW STATEMENT
By Mark E. Battersby
An adequate amount of cash is essential to the successful operation of any masonry business. Predicting and helping ensure that your operation has an adequate amount of cash on hand is an invaluable tool: the cash flow budget or statement.
The cash flow of a masonry business is just that, a flow of cash that provides the solvency of the masonry operation. It is also a measure of the operation's liquidity or its ability to pay its bills and meet its obligations.
When the sales of any masonry contractor go up, cash typically goes down. With additional funds spent upfront for increased materials, inventory and/or labor, with accounts receivable growing, many seemingly profitable contractors suddenly face crunch time.
Who among us hasn't celebrated the accelerated profits of one month only to come crashing down to face the possibility of bankruptcy the next. The solution to this problem is knowing in advance when sales might increase or decrease or expenses take a sudden leap. The key is that cash flow budget.
A cash flow budget is a projection of your masonry business's cash inflows and outflows over a certain period of time. A typical cash flow budget predicts the anticipated cash receipts and disbursements of the masonry business on a daily, weekly or monthly basis.
Unfortunately, because of the uncertainty involved, trying to project too far into the future can prove too difficult. At the same time, a cash flow budget that doesn't look far enough into the future will not predict future events early enough for you to take corrective action in your cash flow.
A six-month cash flow budget minimizes the amount of uncertainty involved in the budget. It also predicts future events early enough for you to take corrective action. An annual cash flow budget allows the masonry contractor to anticipate seasonal changes. Of course, if you are applying for a loan, a potential lender might want to see a cash flow budget that extends for several years into the future.
PREDICTING THE FUTURE
The primary purpose of using a cash flow budget is to predict the masonry operation's ability to take in more cash than it pays out. This can give every masonry (more on page 30)