Cash flow forecasting with confidence

How to build a living cash flow forecast

By Salisburys Director, Ben Gay

A common problem we hear often from business owners is:

“I don’t understand. You’re telling me I’m making money yet I’ve got no money in the bank.”

Profit and what you see on the bottom of a Profit & Loss (P&L) Account is very different to cash flow. Cash flow is the actual movement of cash in and out of the business and that is what determines your bank account balance.

So, building a cash flow forecast is very important, because even though a budget will tell you that you are going to make money, if your timing is poorly aligned between when you get paid versus when you have to pay wages and your suppliers, then you may not have the cash you need to achieve your plans for 2020.

So how do you build a cash flow for your business?

The easiest and simplest way is to work out your cash inflows – which are based off when you are likely to get paid for the work you have done – and your cash outflows consisting primarily of wages, supplier payments, ATO payments (or receipts) bank repayments and occupancy costs.

Take your starting cash balance and then, on a monthly basis, add your inflows and subtract your outflows. This needs to be a living document that you update and monitor on a monthly basis to ensure you can be confident in your cash flow predictions.

At Salisbury Accountants & Business Advisors we believe that good business advice is not just about numbers; it’s partnering with business owners to solve personal operational and strategic challenges.

We listen to business owners and offer a range of accounting and business services to deliver actual advice tailored to your individual needs. Call the team at Salisburys on 02 6041 3014 or visit salisburys.net.au to get your business planning underway in Albury-Wodonga this financial year. Read more about the difference Ben Gay can make to your business’ cash flow forecast »