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Managing your business’s finances is like caring for a plant—you need to nurture it regularly to ensure it thrives. One of the most important aspects of managing your business is keeping track of its cash flow. Cash flow is the money that comes into and goes out of your business. By monitoring your cash flow, you can keep your business healthy and growing.
What Is Cash Flow?
Cash flow is a record of the money moving in and out of your business over a specific period. Imagine it like your piggy bank. When you add money, that's cash coming in. When you take money out to buy something, that’s cash going out. If you withdraw more than you deposit, your piggy bank will eventually be empty. The same can happen to a business if it doesn’t manage its cash flow properly.
Why Is Cash Flow Important?
Cash flow is like the lifeblood of a business. Without enough cash coming in, a business can’t pay its bills, buy supplies, or invest in growth. Even if a business is profitable, it could still face serious financial problems if it doesn’t have cash available when needed. That’s why it’s essential to track your cash flow every month.
Understanding a Twelve-Month Cash Flow
A twelve-month cash flow plan helps you see your business’s financial future for an entire year. It shows when you might have a lot of money coming in and when you might have more bills to pay. By planning, you can avoid surprises and ensure you always have enough cash to keep your business running smoothly.
Creating a Cash Flow Plan for Your Business
Let’s walk through creating a cash flow plan using an example for a company where the fiscal year begins in January 2024.
1. Cash on Hand (Beginning of Month)
This is the money your business has at the start of each month. If your business is new or hasn’t started making sales yet, this number might be zero. As your business grows, this amount will increase as you save money from your sales.
2. Cash Receipts
Cash receipts are the money that comes into your business. This could be from cash sales, collecting money from customers who owe you, or getting a loan or investment. In our example, if you start your business in January 2024, you might not have any cash receipts at first. But as you start making sales, this number will grow each month.
- Cash Sales: The money you earn from selling your products or services.
- Collections from Credit Accounts: Money collected from customers who previously bought on credit.
- Loan or Other Cash Injection: Any money you borrow or receive from investors.
The total cash receipts are the sum of all the money coming in during the month.
3. Total Cash Available (Before Cash Out)
This is the total amount of money you have before paying your bills. It’s the sum of your cash on hand at the beginning of the month and your cash receipts.
4. Cash Paid Out
This is the money your business spends during the month. It’s like paying for rent, buying supplies, or paying employees. In a twelve-month cash flow plan, it’s important to list all the expenses you expect to have each month. Some common expenses include:
- Purchases: Money spent on buying goods to sell or supplies needed to run your business.
- Gross Wages: The amount paid to employees.
- Payroll Expenses: Taxes and other costs related to paying employees.
- Rent: The cost of your business location.
- Utilities: Bills for electricity, water, and other services.
- Advertising: Money spent on promoting your business.
- Insurance: Costs to protect your business from risks.
By planning these expenses each month, you can make sure you don’t run out of cash unexpectedly.
5. Cash Position (End of Month)
At the end of each month, subtract your total cash paid out from your total cash available. This gives you your cash position at the end of the month. If this number is positive, your business has money left over. If it’s negative, you spent more money than you made, which could be a problem if it happens too often.
Essential Operating Data (Non-Cash Flow Information)
Besides tracking your cash flow, there are other important things to keep an eye on:
- Sales Volume: The total amount of money from sales in a month.
- Accounts Receivable: Money that customers owe you.
- Bad Debt: Money that you expect you won’t be able to collect from customers.
- Inventory on Hand: The value of the products you still have available to sell.
- Accounts Payable: The amount of money you owe to suppliers.
- Depreciation: The decrease in value of your business’s assets over time.
How to Use Your Cash Flow Plan
Once you have your twelve-month cash flow plan, use it to guide your business decisions. If you see that you might run low on cash in a certain month, you can plan by cutting expenses, finding ways to increase sales, or arranging a loan.
It’s also important to review and update your cash flow plan regularly. As your business grows and changes, so will your cash flow. By keeping your plan up-to-date, you can always be prepared for what’s ahead.
Download Your Free Cash Flow Template
To help you manage your business's cash flow easily, we’re offering a free downloadable Excel template. This template is designed to help you track your cash flow month by month with ease. Here’s what you can expect from this template:
- Pre-Filled Categories: The template includes common expense and income categories, making it easier for you to organize your financial data.
- Automatic Calculations: As you enter your numbers, the template will automatically calculate your total cash available, total cash paid out, and cash position at the end of each month.
- Customizable Fields: You can adjust the template to suit your specific business needs by adding or removing categories and modifying the calculations as needed.
- Yearly Overview: The template provides a comprehensive view of your cash flow over twelve months, allowing you to see trends and make informed financial decisions.
By using this template, you can ensure that you always have a clear picture of your business’s financial health. It’s user-friendly and suitable even if you’re not a financial expert.
Features of the Cash Flow Template
- Easy to Use: The template is designed to be simple and intuitive, making it accessible even for those new to financial planning.
- Detailed Tracking: Track every aspect of your cash flow, from sales to expenses, with detailed categories and calculations.
- Visual Insights: The template includes visual aids, such as charts and graphs, to help you easily understand your cash flow trends over time.
- Flexible Customization: Tailor the template to your specific business needs by adding or modifying categories and fields.
