Accounting, Bookkeeping, and QuickBooks Tips for Small Businesses

Posts in category Cash Flow Budget

Projecting Cash Flow Using QuickBooks

Cash Flow QuickBooks
The past two weeks we have discussed how to create a cash flow budget and how to effectively use your cash flow projections. If you are list most small businesses, chances are you are using QuickBooks. Today I’m going to teach you the tools QuickBooks has in place to help you manage your small business cash flow.

The most basic way to keep track of your cash flow in QuickBooks is by using the cash flow reports. QuickBooks offers two cash flow reports – the Statement of Cash Flows and the Cash Flow Forecast.

  • The Statement of Cash Flows shows where your money was spent. You can select various time frames to see how you spent your money. Since this report gives you a retrospect view, it’s not ideal for cash flow forecasting. However, it’s a valuable tool to allow you to see where your money went and how it was used.
  • The Cash Flow Forecast Report helps you forecast how much cash you will have by forecasting your receivables (cash inflows), your payables (cash outflows), and your bank accounts. The great thing about this report is that you are able to customize it to fit your needs. For example, you can specify the date range for your report, change the forecasting periods, and make adjustments for late paying customers. Keep in mind the information provided by this report is limited to the information you have previously posted to your QuickBooks file.

To access these reports, click on the Reports menu, then select Company & Financial from the drop down list, and then select Statement of Cash Flows or Cash Flow Forecast from the list.

Another great tool offered by QuickBooks to help small business owners with their cash flow projections is the Cash Flow Projector. Instead of being a report, it’s a tool to help you forecast your cash flows 6 weeks in advance. Keep in mind, the Cash Flow Projector tool creates cash flow forecasts based on the information you have previously posted to your QuickBooks file. The Cash Flow Projector will take you though a step-by-step process to create your forecast. To access, click on the Company menu, select Planning & Budgeting, and then click on Cash Flow Projector.

There are four steps to setting up your personalized Cash Flow Projector.

  • Determine Your Beginning Cash Balances
  • Project Your Cash Inflows (cash receipts)
  • Enter Cash Outflows (business expenses)
  • Review and Adjust Accounts Payable

Want a sneak peak? At any time you can click the “Preview” button to see what your cash flow projection looks like.

A combination of the cash flow reports and the cash flow projector tool offered by QuickBooks will help you manage your small businesses cash flows. These reports and tools will help you see when your business will have positive cash flows and when your expenses will exceed the cash you bring in. Keep in mind QuickBooks only uses the information you have already entered into your QuickBooks file. Even though these automated reports and tools are nice, make sure you are mindful of your business’ cash inflows, cash outflows, and other things that can impact your cash that are not entered into your QuickBooks file. A proactive approach while using these tools will help ensure the reports and information are as accurate and as useful as possible.

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Michelle Edwards, CPA - QuickBooks Consultant Written by Michelle Edwards, CPA
Certified QuickBooks ProAdvisor

Michelle is the owner of Trailhead Accounting Solutions CPA, LLC, an Erie, CO based CPA firm focused on providing small and mid-sized businesses with day-to-day accounting, bookkeeping, and business solutions. Michelle is a CFO turned consultant who loves working with small businesses and entrepreneurs. When she’s not crunching numbers, she can be found hiking, remote camping, gardening, quilting, and hanging out with her family.


Effectively Using Your Small Business Cash Flow Budget

Strategy, innovation and planning for small businessesLast week we discussed how to create a cash flow budget for your small business. This week I want to take it a step further and teach you how to use your cash flow budget.

The main goal of running a business is to bring in more cash than your company pays out. Thus allowing you to reinvest in your business, to fund future growth, to put into savings, to reward your employees, and to take larger payouts for yourself. Whatever your plans are with your cash, you can not get there if you have negative cash flow.

The best piece of advice I can offer is to review your cash flow budget on a regular basis. More often than not entrepreneurs will create a well thought out budget, but then do not follow through with their ideas and plans. I recommend reviewing your budget once a month, at a minimum. If you can, a weekly review is your best bet to keep you on track and help you avoid cash flow pitfalls.

At the end of the month, you should print out your aging accounts receivable and aging accounts payable reports from QuickBooks, or your other accounting software. Compare your actual accounts payable and accounts receivable numbers against your cash flow budget. Did your customers pay sooner than expected? Do you have more bills than you originally planned for? Use this actual data to update your cash flow budget. Updating your cash flow budget as you go along creates a better tool and allows you to have a better handle on your actual cash flow needs as you move forward.

If you are strapped for time (let’s face it, which entrepreneur would like more time in their day), here’s a a quick way to check to see if you are on track. Take your actual receipts (money received from your clients) and subtract your payments (bills you’ve paid this month). How does this number line up against your cash flow budget? Take it a step further and include the difference between your accounts receivables and your accounts payables. If your quick review numbers are off from your cash flow budget, ask yourself if this is an amount you are comfortable with? If not, it’s time to review you actual data against your cash flow budget and figure out what went wrong so you can make changes before it’s too late.

Your cash flow budget will help you discover “cash flow gaps,” which are times when your cash outflows exceed your cash inflows. Finding these gaps before they become a reality allows you to plan ahead for them. Maybe you need to take a smaller owner payout next month, talk to your bank about getting a line of credit in place, ask your vendors if they can be flexible with your payment terms (more often then not they are willing to work with you before it becomes an issue), can you get by with ordering less inventory to have on hand, or wait to hire that new employee you’ve been hoping for (or maybe you can bring them on part time to start instead of full time). It’s easier to make these adjustments before your cash flow gaps become a nightmare.

Now we have you up to speed on your cash flow budget, but what good is a plan if those around you don’t know your goals? Get your management, employees, and bookkeepers on board. If they know you need to generate x number in sales next month to cover payroll or they need to collect a certain amount of receivables to keep your business afloat, you have a better chance of meeting your cash flow needs with their help. Your employees will be happy you included them in your plans and it will offer them a sense of responsibility. ┬áThis gives them an extra purpose and desire to help you reach your business and cash flow goals.

Lastly, I recommend creating 3 scenarios for your cash flow budget – a best case scenario, an average case scenario, and a worst case scenario. As your company moves forward and you compare you actual results against your different scenarios you can see where your company is falling. If your year is not going as hoped, you already have a plan in place to help manage your cash flow under the worst case scenario. On the flip side, if you’re having the best year ever, you probably have dreams, aspirations, and goals you would love to implement. Now might be the perfect time to try out these ideas. After all, you’ve budgeted for them so let’s put this extra cash flow to use.

By proactively managing your cash flow let’s you be in control instead of your cash. A cash flow budget gives you the tools to ensure you have enough cash flow to cover your business needs. It also allows you to see if you are headed for a cash flow gap. By catching those gaps before they become a reality allows you to better plan for them before they become a cash flow disaster. By reviewing your actual cash flow against your cash flow projections, getting your office team on board and involved, and by having three case scenarios will help guide your company to better cash flow success.

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Michelle Edwards, CPA - QuickBooks Consultant Written by Michelle Edwards, CPA
Certified QuickBooks ProAdvisor

Michelle is the owner of Trailhead Accounting Solutions CPA, LLC, an Erie, CO based CPA firm focused on providing small and mid-sized businesses with day-to-day accounting, bookkeeping, and business solutions. Michelle is a CFO turned consultant who loves working with small businesses and entrepreneurs. When she’s not crunching numbers, she can be found hiking, remote camping, gardening, quilting, and hanging out with her family.


Cash Flow Budgeting For the Small Business

Cash Flow Budget for Small BusinessCan I make payroll this month? Do I have enough cash to fund my business’ growth? How much money do I have left to pay myself? If you find yourself asking these questions, you are not alone. Cash flow is an important step to running your small business. Without cash, your company (big and small companies alike) can not last for very long. Learning to manage, budget, and track your cash flow is an important step for small business owners. It is possible for companies to report a positive income while having negative cash flow. Which is why, contrary to popular belief, cash flow troubles are usually a businesses downfall, not profitability issues.

Creating a cash flow budget, also known as a cash flow projection, is a great way to manage your small businesses cash flow. The purpose of your cash flow budget is to track and project the cash inflows and cash outflows over a specific period of time. Most businesses will track their cash flow on a monthly basis, but it is not uncommon to see daily or weekly projections. The first step is to determine how far in the future you should be forecasting. As you know from creating your Profit and Loss Budget, projecting your future sales and expenses can be tricky because of the many uncertainties and unforeseen events that exist. The general rule of thumb is to budget your business’ cash flow for 6 months in advance. This provides the business owner time to look into the future and plan for future events.

Follow the steps listed below and you will have a cash flow budget for your business in no time.

  1. Prepare a Profit and Loss Budget (also known as a Sales Forecast).
    The easiest way to do this is to use your previous year’s financial statements and budget from there. If this is the first year you are in business it will be a little trickier, but not impossible. Research your industry, your competition, and economic factors and create a profit and loss budget for your business.

  2. Forecast Your Cash Inflows
    Working from your Profit and Loss Budget, determine how much money you plan to collect each month based on your monthly invoices. Pay special attention to your billing terms. If your invoices are due in 30 days, but your customers typically take 45 days to pay, use this time frame for your cash flow budget. This means January invoices will most likely be collected in March, not in February. If you offer discounts for customers paying early and three-quarters of your customers take advantage of these discounts, make sure to use these figures on your cash flow budget. For example, a 5% discount if the invoice is paid in full in 10 days, results in a receipt amount of $95.

  3. Forecast Your Cash Outflows
    Again, working from your Profit and Loss Budget, look at your expenses and enter them on your cash flow budget. Think about other cash disbursements that might affect the months you are budgeting for as well. Figure out what expenses will be paid and when. Some items to consider are rent, payroll, leases, office supplies, insurance, fixed asset purchases, etc. Don’t include your non-cash expenses (depreciation and amortization). Even though they show up as an expense on your income statement, they are not cash outflows.

  4. Cash Inflows – Cash Outflows = Net Cash Flow
    Now you have the tools to start managing and predicting your company’s cash flow. You can predict when your cash flows will be positive and also forecast for gaps in your cash flow (cash outflows exceed your cash inflows). This allows you to plan for the future and make any necessary arrangements or adjustments before you find yourself in cash flow troubles.

Here’s a great Cash Flow Budget Template courtesy of the U.S. Small Business Administration (www.sba.gov).

Next week I will give you tips on how to effectively use your cash flow budget, things to watch for, and how to plan for future events.

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Michelle Edwards, CPA - QuickBooks Consultant Written by Michelle Edwards, CPA
Certified QuickBooks ProAdvisor

Michelle is the owner of Trailhead Accounting Solutions CPA, LLC, an Erie, CO based CPA firm focused on providing small and mid-sized businesses with day-to-day accounting, bookkeeping, and business solutions. Michelle is a CFO turned consultant who loves working with small businesses and entrepreneurs. When she’s not crunching numbers, she can be found hiking, remote camping, gardening, quilting, and hanging out with her family.


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