Knowing Your Cash Flow


Once you’ve created your cash flow forecast it should be reviewed weekly (or monthly, as a minimum), so that you always know your financial situation.

If a customer who was due to pay in January is now going to pay in February, adjust the figures in your forecast. Any unexpected expense payments also means an adjustment to the figures.

The following refers to the cash flow forecast table in the previous post:
For each month total the sales (A) and the expenses (B). Calculate (C) by taking (B) away from (A).

C = A – B

If the figure (C ) is positive, you are due to make a profit, if the figure is negative you are due to make a loss.

At the beginning of the first month, enter the actual or estimated bank balance in (D). Calculate the expected cash at the end of the month (E) by adding the profit or taking away the loss.

E = D + C profit or E = D – C loss

The figure (E) becomes (D) for the following month.

As the actual figures become available, further adjustments can be made.

The final figure (E) will never be accurate to the penny, or even the pound, but the forecast will give you an idea of your business’s financial future. You’ll be able to see where you need to put in extra effort to make more sales, perhaps offer incentives to customers to pay sooner or even if you’ll need a short term loan. You’ll also be able to see when you can purchase new equipment, invest in more staff and so on.

1. Review your cash flow regularly, preferably weekly.
2. Look ahead to spot any potential problems.
3. Keep all estimated sales or purchase figures realistic.

Jun 2, 2014