Article by: Fourways Accountant: Annja Louca
All business owners struggle at some point with budgeting; cashflow budgets and then later profit and loss budgets. It is normal for businesses to struggle with cash flow in the early stages of the business, and whenever there is growth or uncertainty in the business. Help is at hand, there are tools that can help with cash flow problems by preparing a cash flow budget.
A cashflow budget is different from a profit and loss budget because it only focusses on cash that flows into or out of the business - what goes in and out of the bank. Whereas a profit and loss budget covers only items that are business transactions.
The big difference between the two types of budgets is that the cash flow budget includes VAT and the profit and loss excludes VAT. This is a big difference because you can imagine all the transactions include a % of VAT for a cashflow budget.
Until recently I used an excel sheet. It was easy to understand, and I just changed it every month to include unforeseen events. Unfortunately, it can take a few hours to do, and I can (and have on occasions) made calculation errors. So, I started looking at what tools are out there to help with forecasting and budgeting and here is what I found (there are many more):
My conclusion is that they are all good programs, but I personally use Receipt Bank (become a client with Anlo and get Receipt Bank for free!)
Top tip: Take the time to watch the demos and don’t select a package unless you are 100% sure you will use it. The subscription payments for all these packages are high and if you don’t use it, it might just make your cash flow situation worst.
Making decisions in business like ‘can we hire a new person’ or ‘should we move offices’ are a very important part of running a successful business. You need to know your numbers and know what effects decisions make on the output of your business.
You need to understand all your business commitments and make sure your affairs are in order. Understand what your debtors are going through and ensure that your debtors can pay. And if not, manage the relationship.
Business is all about relationships and managing the process.
Let’s understand the basics about cash flow budgets:
Suggestion: Make sure your creditors include all the invoices that you owe to creditors and ensure they reconcile to creditors statements. If possible, arrange with suppliers for supplier terms to assist with cash flow pressures.
Steps to take to manage your cash flow:
Cash flow is the biggest problem for all businesses, and it doesn’t just affect new businesses. As soon as a business goes through a growth phase you will experience cash flow problems again. Go back to basics. Look at the businesses expenses and make sure all the expenses are necessary and essential for the business to be successful. Always work on the top-line and invest in making sure your clients are good paying clients that help your business and do not cause you more hassle and admin because you must constantly chase payment.
It is more expensive to get new clients that keeping your existing clients happy. See if you can convert current clients into invoicing.
If you have any questions, contact us and we can have a chat.