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Financial Understanding + Responsibility Yields Independence


Finance and Fury will be focusing on helping you define your aims, and increase your knowledge and ability so you can make the best financial choices.

Jul 3, 2019

Hi Guys and welcome to Finance and Fury’s ‘Say What Wednesday’ Episode. Today we’re joined again by Nick.

Our question today comes from Justin who asks,

“Our building company recently went through issues with its cashflow, so as directors we halved our wages to help…I was wondering if you could talk about the importance of, and the correct way to complete a cash flow forecast. Up until recently we had never completed a budget or cashflow forecast yet we have a turnover of 5 million. Yet, it was the lack of cash flow forecast that nearly brought us down.”

Good question!

Today’s episode we’ll run through;

  • What are cashflow forecasts
  • The different ways of achieving these
  • How to plan to build your cashflow
  • Major issues you may run in to

Business cashflow

As a business owner the company revenues are yours after all costs are paid for

  • Costs of business - What is typically the biggest expense for a business?
    • What is the average profit margin? How does it differ between types of companies?
  • Profits - Used to pay director salaries, dividends, etc
    • How volatile do you see these being? Do most Directors’ incomes vary year to year?

How can a business plan for cashflow forecasts over a 12 month to 3-year period?

  • What are the steps to look at in preparing a forecast?
    • How to know what your costs are?
    • How to work out an estimated revenue?

Types of cashflow forecasts – depending on stage of business:

  • Starting up – what is important? What are your upfront starting costs?
    • How do you forecast something that you haven’t event started yet?
      • Working out prices on goods/service sold
      • Multiply by the number of people you expect to buy your offering – this can be hard
    • Calculating upfront and ongoing start up costs
      • What are some costs people forget about? Bond, insurances, GST/BAS?
    • Do people tend to overestimate their initial forecasts? Is it important to review these upon the first few months of business?
  • Growing – What are the important things to focus on once you are out of the weeds?
    • What are some ways to continue growing the revenues – but not rely on it in forecasts?
  • Mature – What would you consider to be a mature business for cashflow purposes?
    • Is cost reduction important here? Increasing profit margins?
    • Is continuing growth important instead?
  • What are some major issues that you see with some company cashflows at each stage?
    • Do they underestimate costs? Overestimate revenues?
    • How do you plan to go through volatile times? Downwards trend in the business cycle?

Types of business cashflow planning – What are the different methods used across industry sectors?

  1. Professional Services based
  2. Manufacturing/Trades/Construction/etc.
  3. Retail/Hospitality

Avoiding issues in cashflow planning:

  1. What are some key rules to follow in cashflow forecasting?
  2. How often should you review them and adjust the forecasts?
  3. How do you plan provide buffer margins for any inconsistencies between action and estimated?