Here are some exerts from a great resource for managing the money in your business, at the Queensland Govt site at:
http://www.business.qld.gov.au/business and under the Running a Business then Making and Managing Money –
Your cash flow is the money you have coming in from revenue and going out for expenses. Good cash flow management will ensure you always have money available for paying your expenses when they are due.
Even profitable businesses can fail if cash flow is not managed properly. If you don’t have enough money available to pay your lenders or suppliers, banks may foreclose and suppliers could cut supplies.
There are many areas in your business that can impact on your cash flow. It is important to understand how customer payment terms, supplier payment terms, loan payments, future spending decisions and other items can affect your cash flow.
This guide will help you to manage your cash flow and understand how to use cash flow analysis to inform business decisions.
Plan and Monitor Cashflow
Planning and monitoring your cash flow is one of the most important things you can do when running your business. This should also include how you will address cash shortfalls or surpluses if they occur.
Forecast cash inflows against cash outflows
A cash flow statement will help you forecast your money coming in and going out. Forecasting your cash flow is usually done annually and broken down into monthly amounts. Always record the amount in the month it is expected to be spent or received. For example, electricity is usually paid quarterly so should be recorded in the month it is due.
You can use a cash flow template to forecast your annual cash flow. You will need to estimate and record the following amounts for each month:
- Total monthly cash inflow – includes sales, sales of assets, capital injections from borrowings or owners funds, interest revenue and any other sources
- Total monthly cash outflow – includes items such as purchases, loan payments, supplies, telephone, electricity, wages and any other bills
- Net cash flow – take the total outflows from the total inflows to see if there is more money in or out
- Opening balance – record your cash available at the beginning of the month
- Closing balance – calculate your funds available at the end of the month by adding the net cash flow to the opening balance. This will become your opening balance for the next month. Note: If your net cash flow is negative, this amount will be reduced.
Include GST when inserting amounts for some cash inflows (particularly sales) and many cash outflows (particularly purchases). Calculate the difference between total GST inflows and total GST outflows and insert this as GST payments.
Different businesses are subject to differing GST requirements, so you should seek specific advice from your tax adviser. Learn more about working with business advisers.
Monitor actual inflows against outflows
As each month passes it is important to record your actual cash flow. This can be compared against your forecast to see if you are tracking as planned. You may find you need to review and adjust your forecast as amounts change over the year. Always make sure your payments received match invoices issued, and receipts and payments match.
Invest surplus cash or arrange loans
If you forecast excess cash for some months, it can be worth putting it in short-term investments to maximise your income. If you anticipate any shortfalls in cash, you may want to plan to use this invested excess, or seek for an appropriate loan to temporarily cover your costs. Don’t forget to include these extra payments or receipts in your cash flow forecast.
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