Often, clients come to us at Vault because they’re busy and making a lot of money, but still can’t pay the bills or meet their IAS or BAS obligations. We tell them that the problem isn’t revenue – it’s cash flow. Basically, cash flow is the money going in and out of the business. It’s not about how profitable you are or how much revenue you’re making. It’s about how much you actually have at any moment. You may have many customer invoices out there waiting to be paid, but they won’t help you pay supplier invoices today if there’s no cash in the bank. Bad cash flow management can do more damage to your business than any other issue. But we can usually fix our clients’ issues by implementing some simple cash flow planning. Read our advice on how to plan for and manage cash flow as part of your bookkeeping.
Cash flow planning helps ensure you’ll have enough cash in future to pay bills, BAS and IAS obligations, and employees.It’s not foolproof – because it’s difficult to predict what customers will do in the long term – but it will help you in the short term.
Cash flow planning has many benefits for your business:
There are many great reasons to create and use a cash flow plan in your business. Let’s look at how to do that.
Cash flow planning sounds complex but it’s actually just a few simple steps:
Once you know what cash will flow in and out of the business, you can work out your monthly cash flow:
Incoming money – outgoing money = positive or negative cash flow
If you always have negative cash flow, your business could be in financial trouble. Use this information to start improving your cash flow situation before it’s too late.
As you get more experienced at creating cash flow plans, you’ll get better and more in-depth information from them. And your business’s financial management will get better and better.
This is where accurate and up-to-date bookkeeping is worth its weight in gold:
Xero is our preferred accounting system at Vault, and it contains several features to help you track your cash flow. Read this great advice from Xero about keeping cash flow up to date.