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

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.

Download Smart About Money’s Cashflow Planner here