Cash Flow Management Sunshine Coast
I often here clients say, “If I have $20,000 in profit, why do I not have $20,000 in my bank account?”
There is a big difference between profit and cash, which I will explain in this blog.
Profit is simply your income less your expenses.
The reason that your cash balance will not equal your profit, is because your profit and loss statement does not take into consideration, things like, loan repayments or owners’ drawings.
It is for this reason that I believe having a cash flow forecast is one of the most important tools you can have in your business.
A cash flow forecast will show you if you have more cash coming in or out of your business.
A simple way to prepare a cash flow forecast is to:
1. Forecast your sales
2. Estimate any other cash expected to flow into your business
3. Identify expenses and other payments (loans repayments, payments to owners) to be made
4. Bring all this information together and calculate if you have a cash surplus or deficit.
You will be easily able to identify these numbers by looking at your profit and loss statement and balance sheet for prior periods.
Now that you have compiled your cash flow forecast, you can easily make more informed decision, as you can clearly see what is truly flowing in and out of your business. You will be able to make corrective action before a problem exists as you will have more chance of identifying issues early.
My number one tip when creating your cash flow forecast is to, underestimate your sales and over estimate your expenses, to ensure that you will not be caught out.