Every week I get the chance to review cash flow statements from entrepreneurs all across the country and one of the most common mistakes most make is not to include seasonal fluctuations in their monthly forecasts. A business’ cash intake and output streams vary from month to month, and so should it’s projections. Here’s some examples of what I mean:
- Sales for 99.9% of businesses have seasonal fluctuations—some are the heavy seasons while others are light. Whether you are in tourism, construction, a retailer or service you should talk to others already operating in your business sector to identify what these seasonal fluctuations are
- Utilities should change depending on winter vs summer—especially in Canada
- Wages should fluctuate as sales change
- Marketing should be higher in the current or preceding month of peak sales
- COGS should be higher by the same logic in the point above
These are just a few of more common mistakes initial cash flow efforts show. When a cash outflow line (like marketing) has the same amount every month it is called ‘straight lining’ and tells the reader the one who has prepared the cash flow statement has not really thought through the business on a month to month basis. You will help yourself in a very significant way by making these cash flows as realistic as possible as no one likes to run out of cash.