A case study of detailed cash planning using SurvivalWare Cash Planner

Ivan Newton was kind enough to be interviewed about his usage of SurvivalWare to right his business and propel it forward.  His conclusion: “SurvivalWare is the best solution we’ve found that addresses the unique ‘balancing act’ of our small business.”

Here is his story as re-told by Mary Ritley:

Ivan Newton is a franchise business owner who is always looking for ways to improve operational efficiency and profitability. Located in Pittsfield, Massachusetts near Albany, New York, Newton acquired and ran three Kentucky Fried Chicken locations with a partner from 1983 to 1986.   Newton’s role in the business was that of silent partner – investing, contributing ideas, and reviewing profit and loss statements.  By 1996, lack of profits forced Newton and his partner to downsize from three locations to one.  In 2002, when his business partner became ill, Newton found himself taking a more active role in the operations and eventually took over the business in 2003.  

The Challenge

While the business always looked profitable on paper, further review of the financials uncovered notable cash flow problems – enough that Newton had trouble paying the bills necessary to keep the business going. He found himself in the situation that every small business owner dreads. He was cash poor.


Newton made it his mission to better understand cash flow. He searched the internet for information that would help him understand where the money was going and why he wasn’t retaining more profit.


He purchased a variety of software programs that promised to help him understand ratios, make projections, and improve his business. But he quickly became frustrated with expensive “solutions” with complicated applications that offered little more than monthly comparisons. Newton found that these applications didn’t address his fundamental business problem. He needed something much more granular – something that gave him a magnified view of the cash going in and out the door on a weekly, even daily basis. 


The Solution

It wasn’t until Newton found an article about understanding cash flow by Rusty Luhring that he began to understand the basics of cash planning and how to better manage his resources. The article offered tips like identifying invoices that need to be paid immediately and those that can be put off without penalty, invoicing clients early, and offering incentives to pay within ten days. Newton found that Luhring was “speaking his language” and was pleased to learn that Luhring also developed a software package – SurvivalWare – that put those cash planning concepts into action.


After an online purchase and a simple installation process, Newton found himself up and running with SurvivalWare’s Cash Planner quickly. The interactive solution allowed him to assess his cash situation on a daily basis and made it easy to move numbers back and forth, see the impact of proposed spending, make changes, and smooth out his cash flow. SurvivalWare also offered the ability to convert numbers to charts and graphs that provided a visual representation of cash flow trends. This functionality also made it easy for Newton to share financial information with his operations manager and to understand the critical combination of primary factors – sales, cost of sales, and cost of labor – that drive profitability. 


The Results

According to Newton, “We began using the software in earnest three years ago when we found ourselves in a serious cash crunch. Since that time, SurvivalWare Cash Planner has helped us use our cash wisely, prepare for unexpected expenses, and ultimately maintain a higher cash-on-hand balance.” Newton was also able to meet his financial obligations and avoid bouncing checks.


The ability to actually see the impact of cash adjustments and the results of anticipated decisions was essential for Newton’s business.  “No other software package we found offered the ability to conduct an assessment of the business and see how things were changing on a monthly, weekly, and daily basis. With SurvivaWare, I can enter in my accounts payable, and based on accurate sales projections, chart my projected income,” says Newton. He also found the online help to be very beneficial. When he needed to speak with a support person, Luhring returned his call directly and solved the problem.


What’s Next

Newton has recently installed the beta version of SurvivalWare 2.0 scheduled for release in June. This new version has inspired Newton to experiment with features he had not previously used. SurvivalWare 2.0 has enabled him to categorize his sales vs. only seeing sales as a single number. He can now view his cost-of-sales, identify hot items, see items that are generating the most profit, and decide which items to promote. Newton anticipates this new knowledge of his sales mix will help him further improve his profitability.  He concludes, “SurvivalWare is the best solution we’ve found that addresses the unique ‘balancing act’ of our small business.”




The Pros and Cons of Detailed Cash Planning

This is a series of articles on Detailed Cash Planning presented in a logic order.  To get them to appear this way in the blog, I had to write all the articles first, and then enter them in reverse order.



Detailed Cash Planning Defined

Detail Cash Planning is just what is says:  a very detailed approach to planning for the cash requirements of a company, and a look at whether it can meet those requirements.   

We call it detailed because it means you literally make a list of every payment you plan to make (check by check) for the next 3 or 4 months.  You start with scheduling everything to be paid on or before its due date.  Then you look at your current cash balance, estimate when each customer will pay you (for those who owe you money), and take a stab at forecasting what you can do in new sales over the same planning horizon.  Your cash on hand at the end of each time period will be the amount brought forward from the previous time period, plus any money you receive from customers (or loans from banks, dollar bills found on the ground, et.), less any payments you make. 

So your objective is to keep cash on hand above zero.  You might have to adjust the schedule of payments to fit your cash flow estimates.  Or, due to a projected shortfall,  you might gain the insight that a pending deal is a “must have” (as opposed to a “nice to have”), and you make appropriate concessions to guarantee that it goes through in a timely fashion.  Sometimes the result of the planning is that everything looks OK for the immediate future, and you worry less, sleep better at night.  Other times, you get a sense of urgency, and make informed decisions about what to focus on.

Who should do Detailed Cash Planning

  • Small vs. large companies
  • Business vs. personal finance
  • Starting out, no history
  • In trouble
  • In transition 

Small vs. large companies

The larger a company you are, the less likely you should be doing Detailed Cash Planning.  Part of it is the sheet magnitude of number crunching required.  Part of it is that cash has a different meaning in large companies.  You are much less likely to run out of it.  Maybe pay a little more than normal to borrow it.  Traditional financial models are usually sufficient, and you get the law of large numbers. 

0 to $ 1 million in sales is the sweet spot for Detailed Cash Planning, although I’ve seen it done in companies with as much as $10 million in annual sales. 

Business vs. personal finance

I’ve had several individuals express an interest in doing Detailed Cash Planning. These tend to be the more technical types.  Simple expense budgeting is sufficient for most, or even back of the envelope calculations.  For an individual, Detailed Cash Planning might help when you are close to being tapped out.  Or if you’re anal and just want to see every dollar spent. 

Small Businesses are the ones who really get the most out of doing Detailed Cash Planning.  Things are a little more complex than for an individual, especially on the cash inflow part of the equation.  The thing you have to pay attention to is how much time it takes to do.  If it consumes your time so that you don’t have time to make sales or service customers, it is kind of self-defeating.  But if you can do a Detailed Cash Plan in an hour or two, and not have to redo it for several weeks, it is time well spent. 

Starting out, no History

This is an ideal time to do some Detailed Cash Planning.  It helps you think through what you need to do to get the business off the ground.  It helps you decide whether to spend time trying to raise money, or spend the time bootstrapping, instead.  It helps you figure out how long you can survive without making any sales. 

In trouble

The stakes are higher, survival is at stake.  It is worth a lot of time and effort to be on top of your cash situation when the cash is in short supply.  The last thing you want to do is bounce a check when things are dicey.  Actually, the last thing you want to do is go out of business.  Detailed Cash Planning can help you through some tough times. 

In Transition 

When you are starting or growing a business, you spend a lot of time experimenting to see what works and what doesn’t.  Sometimes you zig, sometimes you zag.  It is nice to do some Detailed Cash Planning around these inflection points when the nature of your business changes.  The cash flow impact may not be captured in monthly budgets or traditional financial models.

How to guide – doing Detailed Cash Planning in Excel

Here is a step by step approach to preparing a detailed cash plan in Excel.  I’m sure there are several ways to do it.  I picked the first one that seemed to work. 

This is an expansion of the example mentioned in the article “Surviving a Cash Crisis – Fundamentals” (a must read if you are experiencing cash flow problems right now). 

There are Five steps to creating a detailed cash plan using this spreadsheet. (Download it for free at www.survivalware.com/download/Weekly_Cash_Flow_Forecasting.xls

Step 1 is to figure out how much cash on hand you have now.  Hopefully your book-keeping is caught up and this is a simple matter of going into QuickBooks (or other accounting software) and checking to see what is in your bank account. 

Step 2 is to figure out who you have to pay when, going out over the next few weeks or months.  In preparation, you may want to print out the check register for the last 90 days to get a feel for what you have been paying, and what time of the month.  If your payables are up to date, print out a detailed listing.  Otherwise, keep handy the stack of bills, sorted by date due. 

Enter the end date for week one in the yellow cell (E7) and the other dates are adjusted to be at one week intervals. 


Step 3 is to estimate receipts from current customers.  Enter a list of open Invoices, including the date and amount of each open invoice. 

The date of payment for each invoice will be calculated by adding the Collection Period in the yellow cell (C26) to the date of each invoice. 


Step 4 is to estimate cash inflows from sales that happen in the future.  Enter monthly or weekly sales estimates and make an assumption about collection period. 


Step 5 is to enter any special events – such as going to the limit on your credit cards, or cashing in a 401k.  

Then look at your forecasted ending cash balance at the bottom of the spreadsheet.  You don’t want to see any red numbers down there.

How to guide – using the SurvivalWare Cash Planner



Let’s continue with the same set of assumptions from the Excel spreadsheet, but this time using the SurvivalWare Cash Planner.     

Step 1 – enter the current cash balance.  And also define the planning horizon with the ending date of the first period, and the number of periods, and their units (days, weeks, months).  


Step 2 – enter payments.  We can copy/paste from Excel.  Also, if you use QuickBooks, you can export the current payables to a file that SurvivalWare can import. (See www.survivalware.com/download/Importing_AP_into_SurvivalWare.pdf)


Step 3 – enter open invoices. Again, we can copy/paste from Excel.  Also, if you use QuickBooks, you can export the open invoices to a file that SurvivalWare can import. (See www.survivalware.com/download/Importing_AR_into_SurvivalWare.pdf)


Step 4 – Enter monthly sales estimates.  You have the option of making assumptions about the percentage of orders that are prepaid vs. invoiced, and you can take commissions out of the future cash flow stream as well.  You can also set billing patterns if you want (e.g. End of month billing for services vs. evenly distributed throughout the month for product sales). 


Step 5: Look at the results. You see them graphically, though you are at a loss as to why it takes 4 charts to convey the message.  All you need is the bottom charts to see if there are any months where your cash balance dips below zero.  It turns out they are identical when you do a simple estimate, but will display different measures when you do a simulation.


Here’s where SurvivalWare Cash Planner starts to shine. 

Working on a payment plan

You can mark one or more payments, and then delay them by a certain amount of time, or split them into multiple pieces. 


SurvivalWare makes note of the delay in the Payments tab. 


Now the results tab shows there is no problem.  You just have to explain the situation to your landlord and employees. 


Dealing with multiple credit lines and/or credit cards

 What, you actually borrow against credit cards to finance your business?  Don’t you read the know-it-all financial planning columnists who tell you what a bad thing that is to do?  A very costly form of borrowing?!  Shame on you. 

If you’re going to construct a portfolio of high coupon debt to provide the capital wherewithal to seize opportunities in your business (or borrow from your credit cards to keep from going bust)  – the least you can do is keep track of the details and know where you stand and how it affects your cash flow and cash cushion. 


There is a grid in the Credit Lines tab to capture all the information you need to forecast interest, fees, and minimum payments, plus available borrowing capacity in future time periods. 

(see www.survivalware.com/download/CreditLines_in_SurvivalWare.pdf for a full explanation of the Credit Line feature). 

When you run a simulation, you can instruct SurvivalWare on whether it is OK top tap unused credit lines to keep from running out of cash.


Introducing uncertainty

 You don’t need SurvivalWare to introduce uncertainty into your life.  I’m sure there’s a lot of that already.  SurvivalWare helps you cope with uncertainty in your cash flow by tying many different assumptions together into a single simulation. 

The computer in effect asks “what-if?” 100 times for each tiny event, including the collection of a specific invoice – and tabulates the end result of all the tiny events happening at random, but within the ranges you set. 

In the settings tab, just pick “Run a SIMULATION.”


Collections of existing accounts receivable

You know damned well that not every customer pays in precisely 35 days.  In fact, some receivables may go bad, and you never collect. 

The collections tab allows you to set the “mean” collection period based on the age of the receivable. 


Future Sales

This is where you really need a crystal ball.  First, to forecast what sales will be next week, next month, or next year.  Second, to forecast when you’re actually going to collect the cash for those sales. 

SurvivalWare allows you to forecast up to 10 revenue streams, each with its own billing pattern and other cash flow characteristics. 


For each revenue stream, you specific a low value, most likely, and high value for the sales in each month of the planning horizon.  You can also specify that a certain percentage of the sales are made for cash (as opposed to invoiced), and you can take commissions out with a lag time from when the money is collected from the customer.  (A negative lag time means you pay commissions before collecting). 


Uncertain major events

 The source of the uncertainty could be the timing (a major deal is sure to close anywhere between the 1st of June and the end of August), or the amount (e.g. penalties and interest less negotiated abatements to the IRS for past transgressions), or both. 

I can never remember the format, so I click on the help icon (“?”) in the “Income / Extr Event” tab. 




Tying it all together 

That is what a simulation in SurvivalWare does for you.  Click on the “Results” tab and  the 4 quadrants tell the story of the simulation. 

Here it is without the big deal: 


Here it is with: 


The tabs along the right hand side of the screen let you access other graphs, or dive into the numbers. 

Upper left: Receipts vs. Requirements

This graph shows what happened during the simulation.  Each green line represents the cumulative amount of cash received at the end of each time period for a single “trial.”  The bottom red line represents the cumulative cash required to make all the payments you listed after exhausting your initial cash balance.  The other red line adds to that the minimum payments required on your portfolio of credit cards if you are using the credit line feature.  It is good to see green lines above the red lines – that means you have enough cash.


Upper right: Survival Score 

This graph shows the probability of being able to make the payments according to your payments schedule.


Lower left:  Cash – Conservative View 

This graph shows your cash balance for each time period with 90% confidence.  This means that during the simulation, 90% of the time your cash balance was actually higher than the value shown. 




Lower right: Cash – with Luck 

This graph shows what might happen with a little luck. It shows your cash balance for each time period with 50% confidence.  This means that during the simulation, 50% of the time your cash balance was actually higher than the value shown.