Managing your cash flow with good reporting

Cash is king, and 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 bookkeeper or accountant is well placed to help you out with this, but for those who prefer a DIY approach here are three easy steps to creating a cash flow statement.

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.

If you have installed and set up BudgetLink as an add-on to your MYOB software, this part is super easy.

It’s just a matter of selecting the right reporting options in the printing screen.

But if you are using a spreadsheet, here’s what you do:

• Enter the actual bank balance in the opening balance line.
•  Enter all the debtors (customer) payments and the cash sales you are expecting to receive in the time frame where you expect to receive them.
•  This will automatically add to the current bank balance, giving you the total money available to pay your payments.
•  The next step is to enter these payments. I start by entering in all those payments I am committed to, like loan and lease repayments. I then enter wages, making sure to enter the gross cost, which includes PAYG tax and super contributions.
•  From there I work through the creditors (accounts payable) and forecast a payment date.
•  As you enter these final payments into your cash flow statement, your final bank balance will be adjusting. This is your indicator to know when you will have money in the bank to pay your bills.

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.

For more cash flow management tips, download our free ebook by clicking here