Cash Flow and Your Journals
Cash flow is the lifeblood of your business.
At times, you have a limited amount and others a lot. Managing that flow and its’ use is key to your success. Know how much cash flows in and out of your business is your measure of profitability. Knowing when and where that cash comes in and out allows you to plan on its’ use.
3 Elements of Cash Flow –
Element #1
Known as the cash conversion cycle, your company’s cash flow begins with Element #1 – Cash On Hand.
Cash on Hand is the amount of money you have either in cash in your money box or in your checking/savings accounts. It is the amount of money you start every sales day with plus cash reserves to deposit. Tracking that flow of money is best using your journal.
Your cash journal (AKA a General Journal) is where you record your cash flow.
This is a simple three column journal. One column is for income (your sales), the next column is for your outflow (your purchases and operating expenses.
The third is your balance – how much you have left. Take the total amount of income and subtract what you spent. The “balance” is what is left, but that may or may not be profit. And you still need to pay your operating expenses. These include any rent, phone expenses, and other monthly obligations to keep your business running.
Element #2 – Inventory
How fast you can convert your inventory back into cash is a critical measure. If your cash is tied up in inventory, that money cannot be used to pay your obligations, yourself or purchase more inventory.
Let’s look at Jana’s Journals.
Item | Income | Expense | Balance |
|---|---|---|---|
Cash On Hand | $0.00 | $0.00 | $5,000.00 |
Journals | $0.00 | $530.00 | $4,470.00 |
Lodging | $0.00 | $600.00 | $3,870.00 |
food | $0.00 | $140.00 | $3,730.00 |
|
|
| |
Acct. Payable | $0.00 | $585.00 | $3,010.00 |
|
|
|
|
Booth Fee |
| $150.00 | $2,860.00 |
Show Expenses |
| $100.00 | $2,760.00 |
Jana started 2023 with $5,000 cash on hand.
She traveled to Quartzsite, Arizona for a Rock and Gem Show that also had wholesale vendors with hand-made journals. In her 5-day trip she spent $600 on lodging, $140.00 on food, and $135 on gasoline. She has the receipts to prove those expenditures.
She ordered $530 worth of Journals to be charged to her debit card when shipped. Because her order exceeded $500.00, she received free shipping. That expenditure is considered an accounts payable expenditure but is still an expense.
These transactions left her with $3010 of available cash.
When she returned home, an application to vend at a local art show awaited her. The fee was only $150.00 for a 10’ x 10’ booth space. It was local so there would be no lodging expenses, and most meals would be at home or brought from home. There would be gasoline expense and misc. She budgeted $250 which would require her to sell a minimum of $500.00. Would she be able to do that?
First, she had to be sure she had, or would have, enough inventory. Her current inventory value was $1200, and her order would provide another $1170. She would need to sell ¼ of her inventory to break even.
Next, was her target market the buyers at tis show? She had attended the show last year as a buyer and felt her hand-crafted goods would/should do well there. How well was always in question, but yes, her target market attended that show. She projected a possible profit of $500 - $1,000 for a 11/2-day show. She chose to take the risk.
Element #3 – Sales
Vending at an Art Show is much like having a brick-and-mortar operation – minus the fixed costs. Your business still requires sales to survive.
Attending various shows during the year provides the opportunity to maintain and increase your sales and profits. Take the time to project your sales at each event, as well as your expenses. Know if your target market shops there or not.
These three steps are required to buy and create more inventory to sell and start the cash flow cycle again and again.
Create Your Own Worksheet
Create your own worksheet for each show. Keep track in your Business Journal and make notes about your target market.
- Were they at the show?
- Did they buy from you?
- How much did you profit after all expenses are in?
- What merchandise did you sell and what could sell?
When it comes time to apply to this show again, you will be glad you took notes and have them to review.
After your show, be sure to add your income to this spreadsheet. You'll know exactly how much money you had available from this particular show and how much inventory you can purchase for the next one.
Until next week - - -