Tips for Solos
Managing your cash flow is like steering your ship through unpredictable waters. It’s crucial for keeping your business afloat and thriving! Cash flow forecasting helps you predict when money will come in and when it will go out, allowing you to plan for the future with confidence.
In this guide, I’ll explore simple and effective strategies to help you master your cash flow and keep your business on course.
Let’s dive in!
Know Your Cash Flow Cycle
What is a cash flow cycle? It's the time it takes for cash to enter and leave your business.For solopreneurs, this usually involves:
Tip: Track your sales and payment patterns for a few months to better understand your cycle.
Tip: Keep organized records of your income and expenses for at least the last year.
- Sales Process: How long it takes from providing a service or product until you get paid.
- Payment Terms: Understand your official terms with clients, as well as how long it actually takes them to pay. Do they pay immediately, within 30 days, or longer?
Analyze Historical Data
Looking at past data helps you predict future cash flows. Here's how to do it:- Review Past Sales: Check your sales from previous months and seasons. Did you notice any patterns, like higher sales during holidays?
- Track Expenses: Look at your fixed costs (like rent) and variable costs (like materials). Understanding these will help you anticipate future expenses.
Create a Cash Flow Projection
A cash flow projection is a detailed estimate of how much money you expect to come in and go out over a specific period, usually monthly. Here’s how to create one:- List Income Sources: Include all expected income, such as client payments, freelance gigs, or side projects.
- Outline Expenses: Write down all your expected expenses, including rent, utilities, supplies, and any other costs.
Tip: Use spreadsheets or templates to help organize your projections.
*I explain creating a forecast in detail here.
Example:
| Month | Expected Income | Actual Income | Expected Expenses | Actual Expenses | Expected Net Cash | Actual Net Cash |
| January | $3,000 | $3,100 | $2,500 | $2,400 | $500 | $700 |
| February | $2,500 | $2,250 | $2,300 | $2,100 | $200 | $150 |
| March | $4,000 | $7,500 | $2,600 | $3,000 | $1,400 | $4,500 |
Use Cash Flow Management Tools
There are software options available that can simplify your cash flow forecasting:- QuickBooks: Helps track income and expenses and generates cash flow reports.
- Sage: A business accounting tool.
- FreshBooks: A user-friendly invoicing tool that also tracks expenses and payments.
Update Your Forecast Regularly
Your cash flow forecast should be a living document. Update it:- Monthly: Review your forecast at the end of each month to compare actual cash flow against your projections.
- Whenever Changes Occur: If you gain a new client or incur unexpected expenses, adjust your forecasts accordingly.
Tip: Set a reminder to review your forecast regularly.
Pro tip: I check mine weekly to make sure bill payments never bounce.
Prepare for Unforeseen Events
Business - like life - can be unpredictable, so it's wise to prepare for emergencies.- Build a Reserve: Aim to have a small fund set aside for unexpected expenses or slow months.
- Recommended: Experts recommend 3-6 months, but what you need really depends on the length of your cash cycle.
- If your cycle is short, around a week, then a month is probably sufficient.
- If your cycle is longer, like a month or more, then you do need at least 3 months.
- Important: Make sure to include enough money to cover your personal expenses too.
Consult with a Financial Professional
If you’re unsure about your cash flow forecasting, consider consulting with a bookkeeper, business banker or financial advisor. They can offer personalized advice and help you refine your approach.
Tip: Solopreneurs have unique needs compared to other small businesses. Try to find professionals who understand the unique challenges faced by solopreneurs.
Conclusion
Managing your cash flow might seem tricky and overwhelming, but it’s really just about keeping an eye on your money.
With these easy tips, you can track what comes in and what goes out, helping your business stay on the right path.
To make things even simpler, grab our free cash flow planner! It’s a handy tool to help you organize your finances and get started today!
