Masonry Magazine July 2001 Page. 31
Managing Cash Flow
One of the most important things a masonry business owner or manager can do is to project the cash flows of your business. After all, there are a number of different variables that ultimately determine the amount each expense.
An accounts payable aging schedule may help some masonry business owners and managers determine their operation's cash flow outflows for certain expenses in the near future-30 to 60 days. An accounts payable aging schedule lists all of the amounts that you owe your suppliers. This list will give you a good estimate of the cash outflows that will be necessary to pay your accounts payable.
Another tip for projecting the cash flows of your masonry operation is to classify each of your business's expenses. The cash outflows of every business can be classified into one of four possible categories of cash outflows:
Cost of materials;
Operating expenses;
Major (capital) purchases; and
Debt payments.
PUTTING IT ALL TOGETHER
The final and most important step in preparing a cash flow budget is putting together the projected cash inflows and outflows to produce the cash flow bottom line. In its basic form a cash flow budget or statement combines the following information on a month-by-month, week-by-week or day-by-day basis:
Beginning Cash Balance
+ Projected Cash Inflows
Projected Cash Outflows
= The masonry operation's cash
flow bottom line
(the ending cash balance).
While every masonry contractor will definitely want to include more detail, the basic form of the cash flow budget or statement will always remain the same.
The ending cash balance for the first month becomes the second month's beginning cash balance. The second month's cash flow bottom line is determined by combining the beginning cash balance with the second month's anticipated cash inflows and cash outflows. The ending cash balance for the second month then becomes the third month's beginning cash balance. This process continues until the last month of the cash flow budget is completed (see sample on next page).
A positive cash flow bottom line indicates that the masonry business has a cash surplus at the end of the month or other measuring period. A negative cash flow bottom line indicates that the business has run into a cash flow gap - a period where cash outflows exceed cash inflows when combined with the beginning cash balance.
By now it should be obvious that a cash budget or statement contributes to more effective cash planning. By utilizing a cash budget, masonry can obtain more favorable borrowing terms by advance planning. Conversely, when the budget indicates periods of excess cash, such funds may be invested in readily marketable securities that will yield revenue. Using our example, borrowing would be necessary in order to meet cash requirements in March.
A cash flow budget can help every masonry contractor determine where the business is now and where it should be re-
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2001 USF Surface Preparation Group
MASONRY-JULY, 2001 31