Cash is king; there’s nothing more crippling to a business than having poor cash flow.
Luckily there are tools available to help you out.
The first step in fixing any cash flow issues you may have is to get a handle of how much money is going in and how much is going out.
Generating a cash flow statement
Cash flow is very different from your profit and loss report and your balance sheet.
The cash flow statement reflects exactly what it says — your cash flow, which forecasts how much cash you can expect to have at any given point.
A profit and loss report will show you your profit over a given period, but it does not take into consideration ongoing expenses such as loan repayments, for example.
That is why, even when you know you’re profitable, you always seem to be robbing Peter to pay Paul because the BAS is due or the wages need paying.
February in Australia is notorious for requiring great cash flow management as your BAS and Super contributions are due, sales are usually slow and bills are due from your busiest period over Christmas.
Your accountant is well placed to help you out with this.
1. Find your template
There are many free templates available. Your bank will have one, as will your chosen software. It should be basic and simple and easy for you to use.
Make sure the template can be adapted to the period that you wish to monitor. If you’re a retail business then daily might be your best option, for example.
It does not matter which period you choose to monitor — what matters most is that you update it constantly and use it to monitor your cash flow.
2. Enter these reports
Your cash flow statement will need to monitor what bills you must pay as well as what money is expected to come in.
Before you start completing your template, you need to get the following reports out of your accounting software.
- The Bank Reconciliation Report showing your opening cash bank balance.
- Accounts Receivable Trial Balance showing all money outstanding.
- Cash Sales showing sales for the last period (or comparable period) so that you can reasonably forecast sales over the coming period.
- Accounts Payable Trial Balance shows invoices owing and when they are due
- Gross Wages for the last two periods for estimation purposes
- Regular obligations such as loan or lease repayments or monthly phone contracts don’t usually appear in your profit and loss report.
3. Enter the data
Once you have all these reports, it’s a simple matter of putting the data into your spreadsheet.
It’s just a matter of selecting the right reporting options in the printing screen.
Once you have your cash flow statement completed, it’s a matter of just looking over it daily and adjusting the figures as your forecasted cash sales and wages become actual figures.
Monitoring your cash flow is a constant, but having a plan of attack greatly reduces your stress levels as you are in control of how and when payments are due and paid.
Stop using your daily bank balance as an indicator of whether you can pay a bill or not — change to using a cash flow statement instead.
Your stress levels will go down, and those around you will thank you.
Contact Mitchell Partners in Surrey Hills Melbourne to find out how to manage and report on your cash flow and much more on 03 9895 9333.