A cash flow statement tracks the anticipated flow of money both into and out of your business. It simply shows the timings that money will enter or leave your bank account.
The spreadsheet we have provided includes a cash flow statement. The sales income will be automatically entered, based on the sales entered in your sales forecast.
You will then need to complete your expenses in the month that they occur. Remember some expenses occur every month whilst others may only appear quarterly.
The cash flow also includes a “start-up” month where you record expenses incurred before you start. This will be picked up automatically from your “Start up costs” spreadsheet. Remember you will need to complete the income section of the cash flow for the start-up month – this will either be money you have introduced yourself, borrowed, or a combination of both.
The main purpose of a cash flow is to monitor the movement of cash in the business. A cash flow will simply show you the anticipated level of your business bank account on a month by month basis. Any shortfall will need to be funded by either a bank overdraft or an injection of capital by the owner. Alternatively, you may conclude that certain items of expenditure must be deferred or not made at all.
Banks and other institutions will place great importance on the cash flow. It is highly unlikely that you will obtain any form of loan or grant without a detailed and accurate cash flow forecast.
Once you have entered your expenses, the spreadsheet will calculate your bank balance. Look out for any “minus” figures at the bottom of the spreadsheet as this is an indication that you would run out of cash, during that month, based on your predictions of income and expenditure.
The example below shows a cash flow completed for the first few months, including the start-up month. Notice the “minus” figure occurring in month 3 when the business runs out of money.
Also note that the closing bank balance of one month becomes the opening balance of the next. The spreadsheet automatically carries this number forward.
Remember, if you are showing “credit” sales on your sales forecast (sales where you will not be paid immediately) these sales will appear on the cash flow in the following month, when funds are likely to be received. This is a key feature of the cash flow. Our spreadsheet includes a 30 day credit sales section. Credit sales made in, say month 1, will not be received into the bank account until month 2. If you complete the credit sales section of the sales forecast, the spreadsheet will automatically show funds being received on the cash flow, the following month.
Cash Flow Example
|Pre-start||Month 1||Month 2||Month 3|
|Cash Sales Income||2,000||2,200||2,400|
|Credit Sales Income||0||0|
|Own Funds introduced||3,000|
|Other Income – grants etc|
|Total income = (A)||5,000||2,000||2,200||2,400|
|Expenditure – Variable Costs|
|Total Variable Costs = (B)||0||500||550||600|
|Owners/Partners Drawings (1)||1,000||1,000||1,000|
|Owners/Partners Drawings (2)|
|Directors Salaries (Ltd Companies only)|
|Rent and Rates||0||800||800||800|
|Loan Capital Payments|
|Loan Interest Payments|
|Total Fixed Costs = (C)||4,000||1,976||1,976||2,276|
|Total Expenditure = (D) = B+C||4,000||2,476||2,526||2,876|
|Net Cash Flow = A-D||1,000||-476||-326||-476|
Hints and Tips
- Gas, Electricity and Insurances for Business premises – often it’s easier to arrange for these to be paid monthly
- Loans: check when repayments are due and the amounts involved. Find out how much of the monthly repayment is interest charged – you will need this for your profit and loss forecast later
- Professional Fees: Accountants are usually paid at the beginning of next year; solicitors at the beginning of trading for partnership agreements, leases on premises etc.
- Business stationery: Usually one fairly large payment in month 1 or month 2 with the occasional top up
- Drawings: These only apply to sole traders and partnerships. It’s the amount of money you take out of the business for your living expenses and to pay taxes. You should plan, in the first year, to take what you need to cover your personal survival budget, but of course you can only do this if the money is available to be drawn