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98 • The 100 Greatest Ideas for Building the Business of Your Dreams

this is a cashflow so you do not include any depreciation that comes off your
monthly profit and loss account. If you are depreciating fixed assets such as
computer equipment, for example, the cash implication will be under capital
expenditure on the week that you buy the equipment or in fixed costs as loan
repayments if that is how you financed it. Its value, remember, is an opinion,
we are only interested in the reality.
2. Variable costs: costs that only occur when you make products or deliverservices.
The cashflow will include the details of the money spent on production as it
occurs. If you sell the services of consultants but they are on your books, then
you should include them in fixed costs - you have to pay for them whether they
are working or not. If you employ casual labour depending on having work for
them, then you will have to become good at estimating your profit margin as
you sell them on. So a building contractor will take a view on the percentage of
sales that comes through as variable costs. It will not be very accurate but there
will be sufficient compensating errors if you work on the conservative side to
ensure a reasonably true picture. Think hard about your variable costs and
improve your ability to estimate them and understand the timing of payments.
3. Your skills in getting your bills paid: don't underestimate how much time needs
to be spent on it, and spend money on a resource to do it for you if it is taking
up too much of your time.
4. And finally the bastard: the top line of a cashflow is the sales forecast, the most
difficult estimate of them all. Not only do you have to guess how many units
you will sell, you also have to estimate when the orders and deliverieswill happen.
Add to this the problem that you might not get all the orders you bid for because
you will lose some to the competition. You know you will lose some, but which
ones?

Here is an example of a fairly rough and ready cashflow for a contractor withvarious
levels of gross margin. It was prepared by an expert contractor rather than an ac-
countant who might find it a bit inelegant; but it does the job. Management can see
what needs to be done to ensure a satisfactory cash position.