A More Realistic Case

Chapter 14: About Business Numbers - Page 14.9

A More Realistic Case

Now let's look at the implications in a real case. The real case is a computer reseller (that is, a retail computer store) in a medium-sized local market, with sales of about $6 million per year. The charts and underlying financial analysis are taken from the sample plan for American Management Technologies (AMT) included with Business Plan Pro®, and posted on our sample plan website www.Bplans.com.

The first chart, in this next illustration, shows a representative sample business plan cash flow for 12 months, given standard assumptions for sales, costs, expenses, profits, and cash management. The sample company is profitable and growing. It sells about $6 million annually, produces about eight percent net profit on sales, and is self supporting. The chart shows a 12-month projection of AMT cash resources.

As the Cash Case Starts

With the first take of the cash case, the business looks good and the cash plan is acceptable.

The green colored bars represent the checkbook balance at the end of each month, and the red bars represent the cash flow, which is how much the balance changes in a month. The first set of bars should never drop below zero, because if your checkbook balance is less than zero, then you are bouncing checks. The mathematics don't care, but the banks do. Cash flow simply tells us how much cash is coming into or flowing out of the business over a particular period. The cash flow bars, on the other hand, can drop below zero without major problems, as long as the balance stays above zero. For example, in this case the company's projected cash flow is negative in January, May, July, October and November. The green bar stays positive, but the red one is negative.

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