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Accounting and Bookkeeping for Small Businesses and Sole Traders
Chartered Management Accountant, Certified Practising Accountant
and Registered Tax Agent
My Blog
Blog
Cash Flow Forecasts
Posted on 20 October, 2014 at 3:00 |
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One of the
things that is even more important to a business than profit is cash. Even a
business that is making a profit can potentially fail to survive if the cash
position is not good.
Since nearly
every small business will at some time find itself suffering from cash flow
problems it is important to try and plan ahead and figure out when a cash flow
problem could potentially arise. This is done
via a Cash Flow Forecast.
Most
businesses will have a Cash Flow Forecast that looks ahead for a minimum of 3
months and often for a whole 12 months. These Forecasts are generally “rolling”
forecasts which means that each month you drop your actual month and add the
next month in sequence doing any adjustments to the months already forecast as
appropriate.
The main
difference between a Profit Forecast and a Cash Flow Forecast is that a Cash
Flow Forecast specifically looks at the cash position of a business. In other
words it doesn’t take into account those costs, such as depreciation, which
have no direct impact on the cash position. All
businesses benefit from having a Cash Flow Forecast, and even more so if their
sales are seasonal. Many businesses can be quiet just after Christmas or during
a summer holiday period. By planning for these downtimes in cash flow, and adjusting
purchasing as necessary it will be much easier to keep your business afloat.
How to create a Cash Flow Forecast
Cash Flow
Forecasts can be created very easily using spreadsheet programs such as Excel.
Decide whether you want it for three months or for a whole year, set up the
monthly columns as appropriate and then look at your bank account to get your
starting balance.
Once all the
incomes and expenditures have been estimated the figures should be entered into
the forecast. The incomes for each month should be added to the cash position
and the expenses deducted from it. Once all the
data has been entered you should be able to clearly see if there are any months
when the cash position looks like it is likely to go into the negative. If so
then you can determine what you need to do about it. You may need to delay a
planned purchase or alternatively try and source some finance to get you
through. Cash Flow Forecast Template Available
Please email
me with your email address if you would like me to forward you a template to
use for your Cash Flow Forecasts.
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Budgeting for Personal Finance
Posted on 20 January, 2014 at 17:26 |
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We all know
how important it is for businesses to have a budget but it can be just as
important to have a budget to manage your personal finances. So many people
get into debt because they don’t manage their personal finances properly or become
stuck when they get an unexpected large bill and have difficulty paying it. By
having a personal budget it is easier to ensure that you are prepared for the
unexpected and that you have money put aside ready for those large bills. The primary
goal for a personal budget is to minimise expenses and maximise savings. By
cutting down on unnecessary spending and increasing your monthly savings you
can put that extra saving toward long term financial goals. A budget also
allows you to properly plan for and put money aside for periodic bills such as
quarterly rates bills, or annual insurance bills. Income For most
people who are in paid employment it is easy to know what your monthly income
is. However for those who are self-employed or who run their own business determining
income may not be quite so straight forward. In this instance a best estimate
should be used, if possible aligning it with the business budget. Fixed Expenses There are
certain expenditures which will be the same or very similar each month. These
would include:
These are
therefore relatively easy to budget for. The second category of expenses are those which can vary much more, but by the same token are also those over which you have more control in terms of the amount you spend. Some are still necessary costs but others are not and can therefore be dropped if the budget does not allow for them. These types of costs include:
By first
getting a realistic picture of how much is currently spent on each of these
costs and by then taking control of this expenditure your budget will start to
look much healthier. Help with Budgeting There are many different websites that provide free templates and guidance on creating personal budgets thus making it a relatively easy exercise to perform as long as you have the discipline required. A few samples of these websites are as follows: |
Budgeting for Business
Posted on 12 January, 2014 at 16:23 |
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Once you have
plans and goals for your business the next most logical thing to put in place
is budgets. Budgets can be important tools which unfortunately too many
businesses don’t make proper use of. Too many
businesses will take their “actual” sales and costs from the previous year and
then use them as their “budgeted” sales and costs for the next year. While this
may be a quick and easy way to put a budget together it means that the budget
isn’t being used to its full extent – as a control tool. Budgets can be
used when helping to forecast sales, but more importantly they should be used
to help control costs.
These are all
questions that you should be asking when putting together a budget. Zero Based Budgeting is a great way to set up a budget that is to be used as a proper control tool, particularly for new businesses or businesses that need to introduce better control of their costs. What zero based budgeting does, as the name implies, is that it starts with no costs in the budget at all. You then justify every cost that gets added to the budget:
By asking these questions and justifying every item of expenditure the budget is being used as a control tool making you aware of all your costs and the need for them. Of course putting a budget together is just half of the exercise when it comes to properly using a budget as a control tool. The other half of the exercise is to compare and analyse the actual costs against the budgeted costs. This will be covered in more depth at a later time. |
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