During a conversation with a distributor, this writer asked these questions regarding inventory and dating. "Does your sales force often face a situation where a garden center has placed his large seasonal order with a deferred payment schedule, and when the first payment is due, the check doesn't arrive? Yet when your sales representative makes their usual sales call on the garden center, the representative finds that the owner of the business has a repaved parking lot, a new roof, or perhaps a new automobile?"

The answer that the distributor gave was, "It happens more times than you would think."

This does not at all infer that there was an intent to deceive on behalf of the business. It merely confirms that many retailers have not had the opportunity to be exposed to the theory of cash management planning for their business. In the early 1980's, as computers were beginning to make their way into retail operations, one of the features that was highly touted was the "what if" capability of the computer software.

The software was designed so that a business could take their profit and loss statement and begin to examine the interrelation effect of increased sales or inventory, increased margins, deferred billing of inventory purchased, purchase of equipment, changes in expenses, or any other figure on the statements. As this feature was developed, the idea was that you would also see the change of cash on hand from your balance sheet.

If the software had an elaborate formula, you would be able to examine these changes, and their effects for each of the next twelve accounting periods.

As we have heard from this distributor, and seen in many other situations, the accountants, vendors, and associations have somehow been unable to convince many retailers of the value of the "what if" tool, and the technique necessary to develop it. Yet as one banker stated, "When I asked the retailer that had just applied for a loan, how soon he would want the funds, he responded, 'how about tomorrow?'"

So, why should a garden center want a cash flow chart, and what is involved in building one? The answer to the first question is not just to prevent the situations that was described already. Perhaps the best reason would be to tell you that a retailer utilizing a cash flow chart could accurately forecast his cash balance, inventory, open to buy, and accounts receivable, for each of the next 12 months. And as the chart was updated, it would become more and more accurate.

The banker that made the previous comments stated that he would be very impressed with the retailer that could come into his office and tell him that he was going to have a cash shortage three months from now, and then demonstrate how he would be able to pay the money back using the cash flow chart.

The building of a cash flow chart requires data from your balance sheet and your profit and loss statement. From the balance sheet, we will need to have the inventory, accounts receivable balance, and the cash on hand. We will also utilize the figures that appear on the profit and loss statement.

You will have the option of building a chart that takes into account all of your accrual items. These are the expenses and incomes that are recognized on your financial sheet at a time other than when they are actually received or paid. Some of these examples would be property taxes, dividends from a cooperative, income tax, and rent overrides paid to a landlord.

If your profit and loss statement is not using the accrual method, you probably will not want to have a cash flow chart that is utilizing the accrual method.

The other option is the cash method. Each item is documented when it is actually paid. This is much simpler but you will probably have some extremely profitable months and some extremely unprofitable months.

To begin constructing the chart, start with your cash on hand and add to that your incomes. If your cash flow chart lists your gross sales, and all of your expenses, you can better use the chart for the "what if" scenario to see the effect of changes in each of these items.

By also entering the change in inventory, accounts receivable, sales, and accounts payable, you will begin to see which months will have a buildup of cash, and which months will have cash deficits in the coming 12 months. Using each of your past 12 financial statements, you will have excellent material on which to create your projects. And as you have completed each month, you can extend your cash flow chart for another month, as well as see a clearer picture of the months in the near future.

While you can create this material using a calculator, you can imagine how easy this will be if you are using a computer software program such as Microsoft Excel. By creating such a chart in a template spread sheet, you will be able to see in just a moment what the effect would be of increasing your overall margin by 1/2%, or by eliminating an unnecessary expense.

Most people have a tendency to either be a historian or a visionary when looking at the financial information of their store. The proper place is to show tendencies from both directions. Your balance sheet and the profit and loss sheet provide your historical look. Here, with your cash flow chart, is your vision to the future.