How do I plan and manage my small business cash flow?

Key takeaways

  • Cash flow keeps your business operating.

  • A cashflow planner is one of the most important business tools.

  • You can create a cashflow planner in Excel.

  • It’s important to manage your cash flow by regularly updating the information.

  • Your cashflow planner can help you plan major changes in your business.


Cashflow planning ensures there are no nasty surprises in your business. You don’t need to have an accounting background to work out your cash flow forecast, and once you’ve mastered this, it will provide valuable insight into your business.

The importance of cash flow

You won’t always get paid the moment you deliver your product or service, and business expenses will need to be paid. Cashflow management will ensure that you have enough money to stay afloat, provided it’s updated and managed closely.

You will know what expenses to expect, so you can plan for them. You will also see where you need to change behaviour, such as focussing on increasing sales and revenue or cutting costs.

Cashflow planning can also assist you in planning major business changes, such as expanding your product range or moving to bigger premises. With proper cashflow planning and management, you will know if and when you can make these changes.

 

Cashflow planner

This is your cashflow management tool— a simple way of projecting and managing the money flowing in and out of your business. You will start with projections and then update and revise them regularly.

You don’t need smart software to get started. If you have a basic understanding of Excel, you can create a planner on a spreadsheet. Decide whether you will monitor your cash flow weekly or monthly. It all depends on the nature of your business, but if, for example, you pay wages or other expenses weekly, opt for weekly cash flow management.

 

Setting up

Allocate columns for each time period and rows for each type of income and expense.

Use your business plan projections to populate the planner. If your business has been in operation for a while, use your bank or credit card statement to see when money usually flows in and out. Project as far ahead as you can reasonably predict. Your numbers may not be completely accurate initially, but they will improve with time. Read more: Why and how should I draw up a business plan?

Start each period with the cashflow balance from the previous period. Then project sales and any other form of income. Do the same for your expenses, and don’t forget anything, however small (such as bank fees).

Finally, add a row for income less expenses to work out your net cashflow over the period. This is carried over to the beginning of the next period, at the top of your next column.

Include as much detail as you feel you need to. The bottom line is that your inflow must exceed your outflow, so rather include too much detail initially in case you miss something.

As your business grows, you may benefit from using accounting software for your cashflow analysis and forecasting. Your accountant will be able to advise you on the best route to follow.


CASHFLOW PLANNER EXAMPLE
  March April May June

Opening cash balance

R27 500

R26 600

R16 650

R10 100

Cash inflows

Cash sales

R28 000

R21 000

R25 000

R24 000

Credit sales payments

R21 000

R12 000

R10 000

R13 000

Other

R0

R0

R0

R5 000

Total cash in

R49 000

R33 000

R35 000

R42 000

Cash outflows

Rent

R7 000

R7 000

R7 000

R7 000

Salaries

R22 000

R22 000

R22 000

R22 000

Petrol

R1500

R1 300

R2 000

R1 500

Inventory

R13 000

R5000

R4 000

R8 000

Insurance

R1 000

R1 000

R1 000

R1 000

Utilities

R1 500

R1 500

R1 500

R1 500

Phone

R300

R350

R450

R400

Accounting

R600

R1 800

R600

R600

Loan repayments

R3 000

R3 000

R3 000

R3 000

Other

R0

R0

R0

R1 800

Totals

Total cash out

R49 900

R42 950

R41 550

R46 800

Net cash flow at month end

R26 600

R16 650

R10 100

R5 300

Source: Smart About Money

 

Ongoing cashflow management

Update the planner at regular intervals as money moves in and out of your bank account. This will provide an accurate picture of your cash situation. Your running total will tell you how healthy the business is. If your cash flow is declining, you may need to take action so that you can meet your obligations down the line. If it’s rising, it’s a sign that your business is healthy, and perhaps there’s room for expansion or investment.

 

CASHFLOW MANAGEMENT TIPS

  1. Aim to speed up your cash inflows and slow down your outflows.

  2. Make sure your customers pay you. Call them or follow up if need be.

  3. Offer a discount to encourage credit customers to settle accounts earlier.

  4. Manage your stock wisely; consider ordering smaller amounts more frequently instead of a few large orders.

  5. Pay your accounts in a way that is sustainable for your business. Negotiate the payment terms withyour suppliers in advance.

  6. Sell more to existing customers instead of always hunting for new ones. It costs far less to find them, and you can target good customers who pay on time.

 


Download Smart About Money’s Cashflow Planner here