Lack Of An Effective Cash Flow Planning?-You May Have Issues

Cash flow planning, the expression “cash is king,”

Decide how far out you want to plan for

Cash flow planning can cover anything from a few weeks to many months. Plan as far ahead as you can accurately predict. You might have a predictable sales pipeline and data from previous years if you’re well-established.

If you’re a new business, you might not have a massive amount of data – so the further you go, the more accurate your predictions will be.

Don’t worry too much if you can’t plan far ahead. Your cash flow forecast can change over time; it should. You can update your plan as things change or get exact estimates.

List all your income, preferably weekly, allocating a column for the timescale and a row per income type.

Start with your sales, adding them to the appropriate week or month when they are paid (not invoiced). If you have them, you can predict this from the previous year’s figures.

Also, remember to include all non-sales income, for example:

Tax refunds

Grants

Investment from shareholders or owners

Royalties or licence fees

Add up the total for each column to get your net income.

List all your outgoings.

Now you know what’s coming in; work out what you’ve got going out. For the same periods;

Rent

Salaries

Raw material

Assets

Bank loans, charges

Marketing and advertising spend

Tax bills

Once you’ve listed everything you spend, add the total for each column to get your net outgoings.

Work out your running cash flow

For each week or month column, remove your net outgoings from your net income.

That will give you either a positive cash flow figure (you’ve got more cash coming in than you’re spending) or a negative cash flow figure (you’re spending more than you’ve got coming in).

Too many negative weeks might spell trouble, and you’ll need to do some forward-planning to ensure you can meet your commitments – e.g. paying salaries, loan payments, and rent.

A few positive months might signal you have money to expand or invest.

Credit for inspiration PWC Jenni Chance

For further help with cash flow planning, email MW@revenuenorthstar quoting CashFlow

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