Accounting For You

Accounting and Bookkeeping for Small Businesses and Sole Traders

Chartered Management Accountant, Certified Practising Accountant

and Registered Tax Agent

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Cash Flow Forecasts

Posted on 20 October, 2014 at 3:00 Comments comments (1)
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.

  1. The first thing that you will need to do is work out what you expect your sales income to be. The starting point is Sales Invoices that you have already raised and orders that you have already received. You then need to calculate your expected sales for the following months. If you have been in business for a while you can use previous year’s trends for your estimates otherwise look to any budget or Sales forecast that you have put together. You can also do some market research to come up with some reasonable estimates.
  2. If there is any other sort of income expected, bank interest, tax refunds etc. then these should be estimated next.
  3. The next thing to look at is “known” expenditure for the next year. These are those costs that are pretty much fixed and which you can be certain of, both re amounts and re timing. These costs would include salaries, tax payments, loan repayments, rent, mortgages, lease payments etc.
  4. Finally all other expenses need to be estimated. For the immediate month you will probably already have purchase invoices or will already have made orders of goods and/or services. For future months estimates will need to be made. As with the sales, budgets and/or previous trends can be used to try and determine these figures. Any planned items of expenditure such as fixed assets should also be included.  

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.

Budgeting for Personal Finance

Posted on 20 January, 2014 at 17:26 Comments comments (22)
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.


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:      

  • Mortgage
  • Rates
  • Insurance
  • Utilities
  • Loans

These are therefore relatively easy to budget for.

Discretionary Spending

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:

  • Groceries
  • Clothes
  • Eating Out
  • Car / Travel
  • Entertaining
  • Gifts
  • Holidays

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.

Tip! Put money into a different bank account each month for those bills that are quarterly or annual so that you have the money put aside ready for when the bills come in.

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 Comments comments (0)
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.

  • Are all your costs necessary?
  • Are you spending money on things that you don’t really need?
  • Are there ways to reduce some of your costs?
  • Could you achieve better savings by timing your purchases or by buying in bulk?

These are all questions that you should be asking when putting together a budget.

One example that I saw at a previous company was the buying of stationery. All stationery was purchased online and then delivered. The delivery cost was free if the order was over a certain amount. Originally the stationery was purchased as and when required and delivery costs were frequently paid. However, this was changed to a once a month order, with requirements being added to a list throughout the month. This immediately eradicated the delivery costs while at the same time making staff more careful with their stationery usage thus reducing the cost of stationery consumables too.

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:

  • Do I need to spend this?
  • What is the best price I can get this for?
  • Is there a way to reduce this?

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.