If money isn’t flowing into your business, do you really have a business? And how is your business supposed to support you if it isn’t making money? Businesses are built on cash flow — money moving both in and out — which is exactly why every online business owner needs a cash flow plan.
The order matters: build your business budget first, then build your cash flow plan. Your budget tells you the minimum you need to bring in each month to keep the doors open. Your cash flow plan takes it from there, mapping how you’ll actually make that money — and more. This guide covers what a cash flow plan is, why it works, and six simple steps to create your own.
What is a cash flow plan?
A cash flow plan is a way of predicting how much money your business will make and spend each month so you never run out of cash. Without cash, you can’t pay your bills, your team, your taxes, or yourself — and you have a business, so the cash should be flowing.
It’s a plan you set months in advance (and can adjust anytime) that maps out how you’ll generate income. You know the business owners who fly by the seat of their pants, launching a product or service only when they suddenly need money? That’s what running without a cash flow plan looks like.
With a plan in place, you know what you’re launching and when, because you know how much money the business needs to bring in — and you’ve built a marketing plan to support it. It also shows you when to raise prices, lower them, or simply sell more.
Cash flow planning smooths out fluctuating income
Most businesses have fluctuating income. You can anticipate certain influxes — holidays, seasonal peaks — but a cash flow plan keeps income from swinging as wildly, because you’re being strategic about what you sell and when.
Instead of making split-second “I need cash right now” decisions, you’re bringing money in steadily, before your bank balance ever dips toward negative. When your business hits a seasonal lull, you’re prepared, because you saw it coming in the plan.
You can also base your plan on the months that came before it. Say you’re mapping the next 12 months. Because your budget already tells you how much you need to break even, you can calculate exactly how much of your courses, programs, and services you need to sell to get there — and beyond.
Why bother with a cash flow plan?
I know — another set of numbers to track. But if you want your business to succeed long term, a cash flow plan is one of the highest-leverage tools you have.
And it’s easier than it sounds, especially if you keep up with your bookkeeping. Each month you simply drop the numbers from your profit and loss statement into your cash flow plan to keep it accurate. It may feel hard the first time, but after a few rounds of estimating and then plugging in your actual numbers, it becomes routine.
The real payoff: business owners with a cash flow plan tend to make more money, because they know precisely how much the business needs to generate and have a plan for what to sell to get there. From there, it’s easy to expand the plan month over month to grow your income.
How to create your own cash flow plan in 6 steps
Here are six simple steps to build a cash flow plan for your business:
- Create your business budget. This tells you the minimum you need each month to keep operating, and it’s the foundation your cash flow plan is built on — so you can plan to make more than just enough to stay open.
- Plan what you’ll sell over the next 6-9 months. Look at the past year’s income for a baseline. If you’re new and haven’t made many sales yet, start with a general idea of what you want to sell to get money coming in.
- Decide how much to pay yourself. Build your own pay into the plan from the start.
- Set aside money for taxes. I recommend saving 20-30% of your income for tax purposes.
- Fill in your estimated cash flow, then compare it to actuals. Complete the spreadsheet with your estimates, then at month’s end fill in the actual numbers and see how close you were. If your estimate was way off, adjust the next couple of months.
- Remember it’s a plan, not a rule. It’s meant to change. Nothing here is set in stone.
Your cash flow plan lets you map out your income, know exactly how much you’re planning to make, and open the door to bringing in even more each month — so your business can keep growing instead of lurching from one cash crunch to the next.
This article is for general educational purposes only and is not legal, accounting, or tax advice. Always consult a qualified professional about your specific situation.