This quick blog is about simple cash flow planning.
You may have heard the phrase ‘cash is king’ – we prefer ‘cash flow is king’.
What is cash flow?
A business can be profitable and go out of business because it doesn’t actually have enough money in its bank.
Equally it is often possible to be loss making for a time and still have no problem. Good cash flow planning can help you achieve this.
How do you plan?
‘Cash flow forecasting’ may be something you assume more established business need to concern themselves with, but a simple forecast should be established from the outset.
This can be as simple as a list of what comes out each month and when. For extra usefulness, a running balance added to the list is useful for noticing when you could run out of money or be in a temporary surplus.
You may be able to see for example, on the 12th of the month you are short because your electricity direct debit comes out, but on 15th you are in surplus of cash. Find an easy fix, and call the electricity supplier and ask to move the direct debit to the 15th.
You can use this simple method as a rolling planner, by updating your known payments and receipts.
It’s best to update these briefly each day and compared to your bank. If you have cloud accounting software linked to your bank this is even easier!
You can look at this on a longer-term basis as well, forecasting over 12 months.
An example planner
Download this simple template.
Why planning is important
If you just look at your bank balance each day to decide if you have enough money, this can get you into trouble. Especially as you grow and get involved with VAT or PAYE (staff taxes), as you may have money in your bank that isn’t actually yours (it is the tax mans!).
This will give you false confidence until the day the tax is due!
If you have a larger business and need a more in-depth tool, there are several apps that plug into Xero and QuickBooks that can do this job. Please get in touch with the team to discuss these.