How to create a cash flow projection in excel ? Any business consists out of income and expenses in short. The flow of these funds is a cycle of the money in the business. To deconstruct this a bit further we need to understand the flow of this cycle, with all the inflows and outflows in the business. We control this inflows and outflows by means of a financial budget forecast.
A few examples:
- Purchasing of stock (inventory) – outflow of cash today or in 30 or 60 days (depending on the credit agreement with a supplier)
- Accounts receivable (invoice to the client for the good or service) – Inflow of cash today or in 30 or 60 days (depending on the credit agreement with the client)
- Fixed monthly expenses like salaries & wages, office rent, telephone etc. – outflow of cash during the month.
- Fixed monthly repayment of loans for vehicle or machine finance. business loans etc. - outflow of cash during the month.
- South African Revenue Services – Payment of VAT and provisional tax – Outflow on a specific date in the month.
By using a budget further assist with these important aspects of the business:
- Planning for potential expansion
- Tight control of the income and expenses of the business
- Make sure you are making a profit every month
- Great tool to compare with actual profit and loss made.
An effective budget must also be:
Comprehensive
Working on a great budget will take a lot of time and effort, so be prepared to sit down and really focus on the task at hand. For your budget to truly be effective, you need to be as comprehensive as possible. This includes categorizing all of your income and expenses and making sure that you have included everything in your lists.
Know Your Priorities
Once you’ve listed your income and expenses, you can work on prioritizing where you want your money to go. After all your necessary obligations have been met, you should decide how to allocate any leftover funds.
Set Your Goals
Having goals allows you to get a sense of satisfaction and achievement from sticking to your budget. It’s important to include both long- and short-term goals into your budget plan, as this ensures that you are motivated to stay on track with your savings.
Stay Up to Date
After spending so much time and effort on your budget, it’s essential to make sure you keep it up to date. Include any changes to your financial circumstances, no matter how small it may seem. By keeping on top of your finances and making small changes as you go, you will continue to enjoy the benefits of great budgeting.
Professional Input
It’s a great idea to seek an expert opinion when you are working on your budget. Contact your Accountant for assistance with your budget.
Do a little bit of bookkeeping every day to know the status of your business
Up to date bookkeeping means you have a real-time performance dashboard of your business. This will help you to proactively identify potential threats and opportunities within your business.
A few listed items that may form part of your Budget.
- Rent
- Utilities
- Telephone and Internet
- Insurance
- Employees or Contractors
- Office Supplies
- Inventory Purchases
- Permits and Licenses
- Memberships fees and subscriptions
- Owner’s salary or withdrawals
- Travel
- Interest paid
- Bank charges
- Courier and postage
- Legal and Accounting
- Taxes
- Loan repayments
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Jasper Basson
Entrepreneur SA | Dryk Holdings | Lead Optimizers
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