Business planning and forecasting your cash flows for the year is always important but for some businesses it may be crucial for 2009. A business plan doesn’t have to be complicated to start but will need to become more sophisticated and detailed as your company grows. The importance of any plan is that you are attempting to be proactive instead of reactive to the business environment that your company operates within.

Where should you start? Start with a budget, set aside time when you will not be interrupted in order to focus on the task at hand. Be realistic this may take you several “appointments” on your calendar but do make it a priority. During the planning process it is important to separate your personal budget from the business budget. In most small companies they are intricately tied but plan them separately and then see if your business can support your personal budget. You may be surprised at the impact your personal lifestyle is having on your business health. Part of your objective with the business budget is to determine what is available for you the owner and what should be retained by the business in order for it to grow.

When preparing your budget work on your revenue projections first. Review where your revenue came from last year and in which months and ask some basic question. Will I have repeat business from the same sources and will it be more or less and by how much? Also evaluate who paid timely and who was slow paying and who may go out of business. Use the repeat business as your starting point and then set some realistic expectations for new business. Don’t just plug in a number. Part of the planning process is to set up an achievable goal and to prepare a strategy on how to reach that goal. If you do the homework and write the plan down you will now have a sales plan and a revenue plan for 2009 with a strategy and a measuring stick to use to evaluate your progress through 2009.

Next look at all your expenditures by month last year and again ask some of the same basic questions. Will I have this expense this year and in the same month or months? Will they be more or less and by how much? What new expenses will I have this year and what will the amount be? Can I cut out some expense or find ways to reduce expenses in 2009?

You now have identified your expected revenue and expenses by month for 2009 and from this you can prepare projected income statements but don’t stop there. You should now attempt to project your cash flow by month and this will be impacted by any loan payments you need to make, your credit policies, collections on  receivables, and the management of your accounts payable and other short and long term obligations. Monthly cash flow simply put is your beginning cash balance plus all the cash you expect to come in during the month less what you expect to payout during the month.

Your basic revenue and cash flow plan is almost complete but you should consider the tax impact of the income you anticipate. It would be best to get the help of a tax advisor at this juncture since there are many factors that will affect your taxable income and many different tax strategies available to the small business owner based on your wants, needs, and desires.

Some issues may be outside your control such as bank lending terms and customers going out of business but you will have a better chance of your business not only surviving but thriving if you have a plan in place and you have thought through different scenarios both good and bad and how to address each of them.

Carl is a partner with The Controllership Group. His firm provides outsourced accounting services to business owners, including bookkeeping, tax, controller and CFO  level services. He can be reached at 317-572-1229 or carlk@thecontrollershipgroup.com