Welcome back, readers! Today's article will focus more heavily on the business side of MTG finance, specifically cash flow analysis. To start let's define our terms.

• Cash flow - the total amount of money being transferred into and out of a business, especially as affecting liquidity.
• Cash flow analysis - An examination of a company's cash inflows and outflows during a specific period.

That was simple enough. But what does that really mean? I find the easiest way to discuss this type of subject is with examples. So let's do an easy one (with nice round numbers).

Tim's paycheck (after taxes) every two weeks is $1000. His apartment rent is $500 every month. His cable/internet bill is $100 every month. He spends $50 on gas every two weeks. He spends $150 on groceries every two weeks.

So Tim's monthly cash inflow is $2000 (2 x $1000) and his monthly cash outflow is $1000 ($500 + $100 + 2 x $50 + 2 x $150). So Tim's savings account can increase by $1000 per month (not bad Tim).

A cash flow analysis goes a bit deeper though. While the problem is still very simple we need to factor in the time variable into the equations a bit. For this analysis we need to know when Tim pays his bills. Since it's arbitrary let's say he pays on the following dates:

• Rent 14th of the month
• Cable bill 30th of the month
• And let's say he gets paid on the 1st and 14th of the month.

So when we analyze Tim's cash flow we see something like this:

The takeways here should be pretty obvious. The worst week to try and buy things is week two of any month; that's when Tim's overall cash inflow/outflow is at its lowest. The best time for him to buy things is week three when his cash inflow/outflow is at its highest.

Cash Flow Analysis and Magic

That was a pretty simple example. What if we try something a bit more complicated (and ideally related somewhat to Magic).

Say Jim and his wife Ann own an MTG store. They just opened up and wouldn't you know it a new set is releasing soon. Perfect timing right? New sets bring in new players and those players spend money. However, Jim and Ann don't have a lot of starting capital left (after all they had to buy all the chairs/tables and repaint the storefront they found), say $1000. They want to buy as much sealed product as they can for release events, so they need to understand what they can afford.

Luckily, they have five competitive players who want to preorder product and they all pay the first day of the month (they each preorder two boxes at $100 each). The release is on the 30th of the month. The boxes cost Jim/Ann $80 each. The release packs cost $18 each (and they are charging $25 per pack to play in the event).

They want to make sure they give out decent prizes so for each player they plan on putting in an additional two packs per person (remember 36 packs per box). They also have to pay their facilities rent on the 14th ($800) and their utilities ($100) on the 3rd.

They are expecting 40 players total for their event. They get 20 of those players to pre-register (10 the first week and 10 the second week). Can they run their event as they wanted?

.........

.........

.........

.........

.........

.........

.........

No, they can't. If you just add up all their income and expenses, it shows they are +$402.24 for the month--not great, but not terrible. However, if you do an actual cash flow analysis, you come up with this:

Cash flow analyses are crucial when building a proper budget (both for business and personal use) because they can help highlight potential cash shortfalls.

Say Jim/Ann just looked at the monthly budget and saw they'd be up $400, and a customer walked in trying to sell a collection for $200 on the 8th of the month. They might be inclined to buy it to increase their overall stock thinking they were still net positive $202.24 at month's end, only to realize on week 3 they wouldn't have enough money to buy all their release materials.

This example emphasizes the importance of cash flow and why it's often necessary to do the analysis. When you do not factor in the time element then everything can look good on paper, but when you actually go to try and pay for things you find yourself coming up short. You see on week 3 (when they would likely need to pay for all their preorders) they have negative cash on hand. Thus they cannot afford to put two packs into the prize pool per player unless they can get four more players to pre-register to help offset their cash outflow on week 3.

If you're an actual storefront, you might prefer to break it down into days (rather than weeks) because more often than not some bills may be due by a certain day and others may be more flexible. It may seem like a logical decision to just pay them as late as possible (without incurring additional fees), however doing so might cause you to make a poor expense decision that leaves you short on cash.

Many LGS's also want to keep some amount of cash on hand to purchase collections that walk in the door. More often than not when someone walks in trying to sell a collection quickly, if you don't have money to buy it, they'll simply move on, which can cost you a lot of potential future revenue.

A good cash flow analysis is extremely detailed (hence the suggestion to go to 31 days instead of by weeks). It goes hand in hand with a good detailed budget and can allow a business to run smoothly and without major hiccups caused by cash flow.

It also allows business owners to plan in advance and can be used to determine the best time to hold sales or specials (after all if you know you'll be short on cash on the third week of a month, having special sales on the second week would allow you to go into the 3rd week stronger, as opposed to having an impromptu sale when you realize you're low on cash).

If we look at Jim/Ann's store going into the next month, their "starting capital" is now down to last's months total gains (assuming they were able to get 4 more players to pre-register) so they only have the $402.24 on hand.

Thus, they will have negative cash available by week 2 of the month (when rent is due). Obviously they will likely have other forms of revenue not covered on this spreadsheet (or their business would be an abysmal and short-lived failure), but again this emphasizes the importance of looking ahead and determining your businesses cash flow to look for pitfalls.