Predict and plan: work out in detail when you can expect cash to come in and plan how you will spend it. It will help you to see where you can generate extra cash to fund new projects if you are growing, or even pay off old creditors if you are stressed.

While this applies whatever the size of business, it is particularly critical if you are a micro businesses or a small businesses with significant order-to-ship lead times, buying materials and selling products on credit terms, when you will have a significant working capital – cash – requirement to fund the work in process.

On this article we’ll show you how to put together a cash flow management workbook that will help you to manage your cash, month by month.

Start with your order book and prospect list

Starting with cash coming in, you’ll know your order book, but what about beyond that?

This is the hard bit – study your prospect list and write down when you can expect to get new orders from those clients. For this you have to really understand your clients’ intentions and buying behaviour.

Then,  for your current order book and your prospect list you document your cash inflow:

• order dates;
• shipment dates; and
• client payment dates and amounts.

Suppliers and inventory

Do the same with the supplies, or the stock replenishment you will need to complete those orders – one of the major parts of your cash outflow:

• supplier order dates;
• goods in dates; and
• supplier payment dates and amounts

VAT

At this stage you can then predict the two main elements of your VAT liability. This is particularly important if your are on the accrual system when your VAT is pinned to invoice dates rather than cash payments and receipts.

From your order book and your purchasing plan you have the tools to start to calculate the VAT reserve you will need at the end of each VAT quarter.

Staff costs

You should be able to predict these and add them to your spreadsheet, including PAYE and employer’s NI liability.

Overheads

These, you can obtain from your management accounts. If you don’t have monthly management accounts – and you should – you can use your bank and credit card statements, and your cash book.

The simplest way is to include monthly averages, making allowances for any known increases and decreases. You can then account for any VAT recoverable on overhead supplies.

Cash flow management workbook

So there we have it – your cash flow management workbook. From it you’ll be able to see:

• what funds your have to pay off overdue creditors if your business is stressed;
• what funds your have to fuel your growth;
• which areas to tackle to improve your cash flow – for example see our article on creditors; and
• what extra funds you will need to bring in to accelerate your growth.

Essential tools for well managed businesses!

Posted by Peter Johnson, Business Advisor with SGBA. If you would to talk to someone about your business, please call Peter on 07714 093406 or send him an email to peter.johnson@sgba.co.uk.