OK what is Cash Flow? Cash flow is the flow of money in and out of your business. It is not anything to do with Profit and Loss and does not show on that report.
The best way to manage your cash flow, is to have a cash flow forecast. Your cash flow forecast should include the following three elements.
Revenue – Money coming in
This is all your money coming in as sales but includes any capital you have put into the business, grant money and loans. With your sales, you might want to divide this up into sections or enterprise e.g. Hay, Straw and Barley.
By putting the different income streams into different sections, it can help you work out what parts of your business bring in the most money.
Be realistic as much as possible, and plan for seasonality if it is relevant to your business, such as farming, tourism and produce.
Expenses – Money going out
This is all your expenses to your business, including all your regular payments going out and monthly, yearly and one-off payments. Monthly payments would include supplier payments and utilities. Quarterly payments could be your VAT return and yearly could be things like insurance and subscriptions.
Net Cash Flow
This is the difference on a monthly basis between your total income and your total expenses. If it is a minus figure, then it would suggest that your expenses are greater than your income.
A cash flow forecast will have month by month accumulate figures which will help you plan ahead for large purchase items or just to work out if you can meet your regular payments.
MY TOP TIPS!
To help improve cash flow keep your bank reconciliation up to date. This might sound obvious, but it will help with clarity on a weekly basis.
Have a list of your direct debits, list them in date order of when they come out of the bank, this will help with planning or daily cash flow.
Keep track of your card receipts. There is a saying, look after the pennies and the pounds will look after themselves. Make every expense count. If you are self employed this is especially important.
A good system to get into is to copy receipt by a clever app called receipt bank https://www.receipt-bank.com/uk/ which takes a photo or PDF of all your receipts and loads them up to your accounts software.