Video: Cash Flow


Video: Module 7 – Cash Flow

Presenter: Kay Ryan

Speaker Kay Ryan

Preparing your cash flow is like planning your family budget. You estimate your income and your expenses, and what’s left over should be sitting in your bank account.

With budgeting for your business, you have such income as sales revenue, other income like loans, personal cash investment, and possibly the sale of used equipment, or maybe a sublease on rental income.

Your expenses will consist of your drawings or wages, your products or service cost, and all other operational expenses. You subtract the expenses from the income and that should indicate what should be left over in your bank account.

Now think of your cash flow like a wallet or purse – money flows in and it flows out. And hopefully more will flow in. Leave your cash flow to the last when doing your business plan. Then you’ll have a good idea of what expenses you’re going to have, and hopefully your market research will give you an indication of what your sales will be.

When you’re doing your cash flow, try to remember that your business is going to have peaks and valleys. This means you’re going to have busy months and you’re going to have slow months. And some expenses, like insurance for instance, might come in one particular month. So, you’re going to have a higher month worth of expenses. Now, don’t be tempted to take that insurance and divide it into twelve unless you’re really going to pay it on a monthly basis.

I must stress that you should use a spreadsheet software. We have a template in the course that you can use, and it will help you create your cash flow so much easier. But, if you have to do your cash flow by hand, be sure to round everything to the nearest dollar, as it will make it much easier to add up.

Be realistic with your projections, conservative in your sales estimates, and overestimate your costs. You know, just like real life, expenses are going to come up unexpectedly. Project cash transactions only. Do not include equipment, tools, or fixtures that you’ve already owned and that you’re going to bring into the business. If any given month you should show a deficit total, you will need to deal with that now because those expenses will need to be paid. For instance, see if you can move an expense to another month. Maybe you can take less drawings or wages in a particular month. Can you invest more personal savings into your business? Or do you have a line of credit available to cover those extra costs? Don’t be tempted to increase your sales, because if you didn’t think they were going to be that high to begin with, why would they all of a sudden be higher now?

Now let’s have a look at the parts of the cash flow. You have the title and year, a cash-in section, a cash-out section, then at the bottom you have a cash summary where you carry down the totals to show what you have left over each month and what your cumulative total is for the year. Each column has a heading for the month, and remember to start the cash flow in the month that you’re actually going to start your business. And you can even include a start-up month if you want to, to cover your pre-planning and cost. And finally, each row is labelled with an income or expense description.

To total up your cash flow, add all the columns down and all the rows across. You’ll know your cash flow is balanced when you subtract the grand total for the expenses and the grand total from the income, and they match the cumulative total for the year.

Once you’ve done your cash flow, you can make your projected income statement from the cash flow totals. Go back to the cash flow and list all the sales revenue only. Do not include any personal cash investments, grants, or loans that you may have received throughout the year. Then list all your expenses in the expense section except your drawings, any equipment purchases over $250.00, and loan principle payments – however, you can count loan interest. It’s best to thoroughly read the Financial Planning Module for more details. Once you’ve listed all your expenses, total them up and subtract them again from your income. This will give you either your profit or your loss for the year.

Good luck and have fun!

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