How to Prepare a Cash Flow Plan

May 3, 2022

How to Prepare a Cash Flow Plan

If you’re a small business owner, you’ve probably been told that you need a cash flow plan or, as it’s sometimes known, a cash flow forecast.

However, while you might understand the basics of bookkeeping, you might be a little lost when it comes to things like forecasting and cash flow planning. So let’s take a closer look at what this means and how you can create your own cash flow plan.

What Is a Cash Flow Plan, and Why Is It Important?

When you’re talking about business finance, you will hear a lot about revenue, sales, profit and loss and many other terms. But the most critical thing to your business is cash flow.

Cash flow simply means how much money is coming into your business versus how much is going out of your business. You're in good shape if you have a positive cash flow (you make more than you spend). If you have negative cash flow and spend more than you make, you will get into trouble fast.

A cash flow forecast is simply a plan that predicts how much money your business will have in the bank versus how much you will have to pay to service providers and suppliers. If your projected cash plan doesn't look positive, it’s a sign that you need to change something in your business and focus on reviewing your cash flow.

Steps to Prepare a Cash Flow Plan

The good news is that you probably already have most of the information you need to create a cash flow plan, and it’s not too hard to put it all together. Here are the various things you need to know and use for cash flow management and planning:

To start with, ou need to know your starting cash balance – how much money do you have in the bank right now?

You can import a live Cash Flow report as a starting point with LiveFlow in a few clicks:

  1. Calculate your monthly running costs – these are all your fixed and variable overhead costs, including rent or mortgage payments, utilities, salaries, office supplies, etc.
  2. Review your past sales data to predict what your sales might be for the months you will be forecasting – if you already have orders in the pipeline with delivery dates set up, this can also help predict your sales.
  3. Don’t forget to include any deposits you will be paid for jobs that are coming up – while you still have to do the work, a cash flow forecast is all about cash on hand, so they need to be factored into your projections when you receive them.
  4. Calculate the cost to complete those orders in material and labor that are not covered by your running costs. This could be non-stock materials, outsourced services or equipment rental costs. Factor in everything that is not included elsewhere.
  5. Be sure to include your payment terms – even if you place an order today, the money might not leave your account for a month or two, so you should apply that cost in the month it will be paid to the vendor or service provider.

A cash flow plan is simply a method of predicting your income and expenses in the long term so that you can ensure you always have a positive balance in your bank statement. If you find that your cash flow planning keeps coming up with a negative balance, you know you need to make some changes, either by generating more net cash flow or cutting expenses.

Make It Easier with LiveFlow and Google Sheets

Cash flow planning is not that complex when you break it down in these terms. However, nothing in business is the same from one day to the next, so keeping your cash flow plan up to date will be a struggle.

The simplest way to ensure your cash flow plan is always current is to use LiveFlow and the Google Sheets Add-on to connect QuickBooks to Google Sheets. This kind of integration means that when you make a change to your QuickBooks data, you will also automatically update your reporting in Google Sheets.

This will add new sales and deposits to your positive cash flow and automatically update expenses as they happen. You can even create a sheet that automatically sorts your expenses based on when they are due to be paid with the live Accounts Payable dashboard:

With the LiveFlow, you don’t have to update your cash flow planning every day because you’ll always be working with the latest data from your own accounting software. So you can save time on accounting tasks and still have real-time, up-to-date cash flow information when you need it.

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