With today's credit crunch and the housing market continuing to implode, most entrepreneurs and small business owners are finding it difficult to operate their business due to a lack of working capital. The quick solution is to run to the bank for a loan or source relatives to help manage these difficult times in our small business.



Bank loans or any kind of loan for that matter is not the correct solution. Believe it or not, most small businesses have working capital imbedded into their operations where it takes a trained eye to find it.

Most small business owners don't realize that simple management of cash flow and a little due diligence relative to managing the sources and uses of cash flow can actually create most of the working capital we all look for. Sure we're going to have to tighten our belts these days to ride out the housing crisis, which by the way will eventually spill over into our businesses regardless of what we service or sell.

It's osmosis. We need to understand that most small business is built via consumer's disposable income where a lack of cash or a decrease in consumers' disposable income, will eventually affect our business as well. Oddly enough, most economist predict a recession where last month's consumer disposable income rose to over 9%, it is getting harder to predict which way the next 15 months might take us.

For those of us that are relatively knowledgeable about Microsoft Excel and have a working understanding of macros and or formulas, you can create a simple spreadsheet that allows you the ability to project and manage the sources and uses of cash as it relates to your particular business.

It's really rather simple where all you have to do is create two columns in a new spreadsheet document where one column should be titled "estimated" and the column right next to that should be titled "actual". To the left you want to incorporate the four parts of your income statement, such as sales, COGS, expense and finally total income.

Once you have this basic template set up in a new Excel spreadsheet you will begin to see how it should calculate via a couple of formulas. The cash flow tool is easy to make and easy to manage with your dedicated input on a daily or weekly basis. I give all my small business clients an Excel template like this so they can use it to manage the ebbs and flows of their business.

There are many ways to manage cash flow in our small business where taking on a loan is not the best solution. There are many templates of cash management tools on the Internet and there are many reporting tools inside the typical accounting software package suck as QuickBooks and SBT/ACCPAC where we may not need to source a bank loan.

But, if you do need to source loans to generate working capital, make sure you are diligent enough to manage the expense you will incur via the loan payment. Oh yes, and make sure you are able to incorporate the interest expense your business will incur via that same loan. So, what's more cost effective, due diligence in a cash management process or a bank loan?