The Art Of Cashflow Management

Point 1

Always be aware of what you have in the bank Account

Point 2

Put together a short term cashflow 3 months and a longer term one 12 months

To put together the cashflow statement

Sales Income Put all you known sales turnover from your diary into the forecast Unknown your new sales turnover, use last years figures to guide you, in the absence of last year, use a realistic sales turnover.
Don’t forget VAT and keep it separate, as this money belong to the Inland Revenue
Other Income ie bank interest, dividend, insurance refunds.

Costs Cost of Sales this can be based on your average margin percentage

Overhead costs

Fixed and variable

Ie rent, heating, salaries, office costs
Bank loans and capital
The VAT return and Paye

Point 3

Update this daily or weekly, with actual figures, this will allow you to see in advance how your cash is being spent, and also if you need to fund the business. Or used for Capital expenditure and taking on staff. It’s a great predictor for being able to do operation things.

Point 4

If you see a dip in funds, make sure you know in plenty of time, as a six week window may not be able to be filled, whereas a 3 to 6 month window you can plan ahead, and build up cash funds to cover you over the slower time.

Point 5

Use other sources to save on cashflow Gain credit with suppliers Get your capital expenditure leased, or obtain a bank loan. This will also improve your credit score. You score goes up, when you are able to get credit.

Point 6

Keep this on track at all times, even when you are in a cash rich, situation. You might be wasting your money on low interest schemes. Look at saving in other areas.

Let it be used against bringing your tax bill down, investments in EIS schemes, Pension contributions.
Further investment that will give a better return. Capital expenditure. Website development.

How Graphs Can Be Used For Your Business

Graphs can be used by Financial and Non Financial managers in a variety of ways.

Sales

Sales Managers have targets that are set for them by the company they work for.  They can track their sales in a variety of ways.

Our example shows Sales split by category/or segment and shown against budget. Targets that were set at the beginning of the year.

This graph also tells you the most popular and productive products on sale.
You can take this further and look at the margins of each product category, you might not sell a lot of something but if it returns a higher margin/profit rate, you don’t have to sell as many to get the same profit figures. There may also be seasonality in that product line.

Ie in hot weather a newsagent may sell a lot more drinks than bars of chocolate.
In cold weather the icecream freezer might go untouched. Easter, Half Term, Christmas. You would tailor your sales targets to match demand.

Apply this method to your particular product line.

 

Cashflow

You might want to set yourself a target bank balance for you to meet your overheads and make a profit.

The graph will show against budget whether you are meeting that goal.

It also gives indication of the business behaviour, see our example the graph shows above the line at first, then dips over February to April then comes back up.  Back into the target position and above.

If the graph had shown erratic it would give an indication of how well the manager is managing the business. In a planned approach, or finger in the air approach.

Gross Profit

This is a key figure in your accounts, it indicates whether you have made enough sales to now cover your overheads and make a profit.

Our graph shows a rise and then a sharp dip in May, this could be down to several factors.  The Sales themselves were generally low that month, an error in charging the right selling price for a new product line, an operational issue.

If you see a dip in any of these things, look for the reason, if easily explained, you could be putting action in to put yourself back on track.  Also look out for high peaks, these should be explainable.  ie a new contract, timing issues, seasonality, or it could be an error.

This blog is intended for information purposes only and is only advice from past experience, you may have other suggestions of your own.  It is not intended to be used to make all of your business decisions but as a guide only.