Cashflow is the lifeblood of any business. Through these current economic times where future certainty is less than usual, careful management of cashflow is vital to maintain any business as a going concern.

Your cash flow is the money you have coming in from sales and going out for expenses. Good cash flow management will ensure you always have money available for paying your commitments when they fall due.

Even profitable businesses can fail if cash flow is not managed well. If you don’t have enough money available to pay lenders or suppliers, banks may foreclose, and suppliers could cut supply.

There are many areas in your business that can impact your cash flow. It is important to understand how customer payment terms, supplier payment terms, loan repayments, future capital investment decisions, personal drawings and other items can affect your cash flow.

Planning and monitoring cash flow are one of the most important actions you can take when operating and managing your business. This should also include how you will address cash shortfalls or surpluses if they occur. For example, having pro-active and timely discussions with your bank can be vital to provide financial support through the times where you may expect to have cashflow shortfall periods.

Budgeted Cashflow Report

A budgeted cashflow report will help you forecast your money coming in and going out. Forecasting your cash flow is usually done annually and broken down into monthly amounts. Always record the amount in the month it is expected to be spent or received. For example, electricity is usually paid quarterly so should be recorded in the month it is due.

Your budgeted cashflow report will forecast your annual cash flow. You will need to estimate and record the following amounts for each month:

  • total monthly cash inflow — includes cash sales, sales on account including when you expect your customers to pay, sales of assets, injections of money from borrowings or owners’ funds, interest income and any other sources
  • total monthly cash outflow — includes items such as direct costs, loan repayments, overheads such telephone, insurance, electricity and wages including superannuation, asset purchases, taxation commitments and also personal drawings from the business
  • net cash flow — take the total outflows from the total inflows to see if there is more money in or out

Monthly Monitoring

Your annual budgeted cashflow report which has been broken down monthly now provides a framework to regularly assess how your business is performing. As each month passes you can compare actual performance against your forecast to see if you are tracking as planned. You may find you need to review and adjust your forecast as amounts change over the year.

The monitoring process enables you to be making vital decisions associated with the management of your business operations. For instance, where your cash flow position is less than where you forecast you can investigate why. Is it due to your customers taking longer to pay their accounts, are your overheads costs more than forecast and are you drawing too much out of the business to meet your lifestyle needs? Alternatively, should your cash position be greater than forecast you can then consider options such as bringing forward future capital investments or paying down business debts.

At Davidsons we work with clients in preparing Budgeted Cashflow Forecasts. The process provides immediate feedback as to the position of cashflow over the next period (usually 12 months) along with a scoreboard to assess how the business is performing and what pro-active decisions are required to maintain the lifeblood of the business.

Should you wish to know more don’t hesitate to e-mail myself on or your Davidsons team member.


Disclaimer: this information is of a general nature and should not be viewed as representing financial advice. Users of this information are encouraged to seek further advice if they are unclear as to the meaning of anything contained in this article. Davidsons accepts no responsibility for any loss suffered as a result of any party using or relying on this article.