December 17, 2019

Cash Flow Planning Pt 1

On this episode of The Gross Profit Podcast, James Kennedy and Garret Carragher introduce their new cash flow template.
Gross Profit Podcast
The Gross Profit Podcast
Cash Flow Planning Pt 1

Show Notes

If you run a small business, then you understand the importance of cash flow. Small businesses don’t usually have the cash reserves of small and medium sized businesses, so even minor changes in cash flow can cause huge disruptions.

That’s why we’re sharing our brand new cashflow template with you. This helpful guide makes it easy to visualize everywhere your cash is going over selected periods of time, and identify the habits and patterns that shape your business. 

On this episode you’ll hear:

  • What cash flow planning is and why it’s so important
  • What to put for your opening balance
  • How to separate cash from credit
  • A variety of other ways to track your incoming money using our new cash flow template

If you’re looking for a better way to understand your company’s finances then this is one episode you won’t want to miss! 


What Is Cash Flow Planning?

Alongside listening to this episode, we suggest you download our companion worksheet we have made.

Cash flow planning is crucial to the financial operations of your business, as a problem with cash low can end your business. It involves the managing of your cash flow, which is your money being transferred into and out of your business. It’s important to do your cash flow planning at least once a month, preferably weekly. 

Many medium sized businesses or large businesses have an overdraft facility, so that if they need more cash for their cash flow, they have a backup. Smaller sized businesses usually don’t have an overdraft facility set up.

Bank managers will also favour your business when considering giving you a loan if you have all of your cash flow mapped out.

Your Opening Balance

Make sure you always start filling in your cash flow sheet by filling in your opening balance. Your opening balance could be how much money you have in the bank or alternatively, your overdraft balance.

Exclude any cheques that haven’t gone out of your bank account and any payments that haven’t come in. Never try and predict how much money you are going to have at the end of the same day you are filling in your cash flow template!

Always make sure that you keep a copy of each week’s cash flow. Don’t delete any data in the cells to make space for new data.

How To Separate Cash From Credit

Most of a business’ income will come from sales. In terms of cash flow, there are two types of sales.

If your customers are paying for your service or product immediately, you have a cash sale. You will receive that money in your bank account as soon as the payment has been processed by the bank.

On the other hand, you have accredited sales. Accredited sales are sales that give customers credit terms they have to abide by. For example, they have to pay within 30 days and in this instance, you look at previous cash sales and you use that cash in place of the credit until you get paid the credit.

By separating cash from credit, you gain insight into what your actual income the next month will be because there is a distinction between cash and credit.

Tax Refunds When Cash Flow Planning

VAT in Ireland is simply a tax on anything sold in the state you are in. Depending on where you live, you may have various taxes that you need to take into account when cash flow planning. If you have any tax related income, put it in the “VAT refunds” row on the spreadsheet.

Tracking Other Sources Of Income

The four “Another” rows can be used to track any other income that you receive that is specific to your business. If your company generates other money, then look at it individually by filling these rows in.

If you have several other types or sources of income coming into your business, you might think that it is best to group them all together. Perhaps you are very familiar with a constant number you receive every week from that type of income and you can predict it fairly easily. If that is the case, it is still important to track all of this income on an individual basis. 

We hope you enjoyed this episode of The Gross Profit Podcast. We also hope that you have found this episode to be useful and that you have learnt a different approach to cash flow planning. If you liked this episode, make sure to follow/subscribe!

Transcription of This Episode

The Gross Profit Podcast is your one stop shop on the path to profitability. Each week we share authentic advice on the positive, practical steps you can take to make the company you love more profitable. If you’re looking for a positive plan to help you avoid common spending mistakes, control costs, and increase your profits, then this is the place for you.

I’m Ryan Cowden, and this week we’re joined by James Kennedy and Garret Carragher. In this episode of The Gross Profit Podcast, James and Garret introduce a new cash flow template and talk about how to use it to track your income.

If you run a small business, then you understand the importance of cash flow. Small businesses don’t usually have the cash reserves of small and medium sized businesses, so even minor changes in cash flow can cause huge disruptions. That’s why we’re sharing our brand new cash flow template with you. This helpful guide makes it easy to visualize everywhere your cash is going over selected periods of time, and identify the habits and patterns that shape your business.

On this episode, you’ll hear what cashflow planning is and why it’s so important. Cash flow is the lifeline of all businesses, so it’s important to clearly see when your cash is coming in and where it is going. If you’re a small business, it might be wise for you to use this cashflow template weekly to stay up-to-date on how your business is doing.

Next, we’ll go over what to put in for your opening balance. Your opening balance should include all the money you have in your bank at that point in time, avoiding any predictions, or anticipations of money that might come in. The point is to provide a snapshot of your business as it is right now. Then we’ll talk about how to separate cash from credit. Classify all immediate payments as cash, and all payments that have come in from services rendered in the past as credit. Making this distinction keeps you from double booking your money, and shows you exactly how your company is behaving right now.

Finally, we’ll discuss a variety of other ways to check your incoming money using this new cash flow template. This includes any money gained from other sources, with spaces provided for you to customize the template to reflect your own situation. If you’re looking for a better way to understand your company’s finances, then this is one episode you won’t want to miss. There’s a lot of actionable advice in this episode, so grab something to write with because you’re going to want to take notes. As always, I’ll be back on the other side to wrap up any loose ends. So without any further ado, here’s our conversation with James and Garret.

Hello. Welcome back to The Gross Profit Podcast. It’s your host, James Kennedy here, CEO of where we help hundreds of companies safely spend billions of dollars each year. I’m, again, joined by the secret CFO, Garret Carragher. Garret, how are you this week?

With Jim’s hostings? It’s all good this week. It’s a bit wet down here in Kildare, but otherwise it’s all good. It’s always lashing. I see our book is out, anyway and sales are going well. Hopefully now people can log onto your site there and get a copy.

Yeah. Book I have a copy in my hand here, and I tell you Christmas is going to be very special for my family this year.

They’re all getting multiple copies, no doubt, and what a joy it will be when your little fellow or someone opens up the stocking and there is the book signed by both of us. What a joy. Hopefully you record this for posterity and take a few pictures, you know?

It’s funny you should say that because my eldest son, Max, he’s six, and he wants to be an author, you know?

Does he?

Yeah. And he says he has a plan. He says he wants to be an author when he grows up, he’s going to … For kids, he’s going to write children’s books. You know? Like for teenagers, he’s going to write scary books. And for adults, he’s going to write boring books. That’s what he told me.

Right, right. That’s brilliant. Is it a book or a character? What’s his plan?

He’s big into this thing called Night of the Living Dummy . It’s like scary stories for kids. He loves it and his main character’s Dummy. Anyway, when he saw my name on this book, he went apoplectic. He said, “Dad, are you an author?” He was just blown away so he doesn’t take cards. Actually I think I’ll get one. He would be very happy to receive one of these. Profit leaks, a hundred pages of action packed hot tips on improving the margin in your business. Finally, if you are a frequent listener to the podcast, Jasper I’m talking to you, you will have a, you’ll be, she got a copy now. It’s available so and it’s in print. It looks pretty good. We’re going to be giving, we’re going to be launching it next week, the London business show at the XL center. If you’re going to be there, come along. I’ll give you a copy. It’s a thing. It’s for kind of people who are wanting to start up a business or running a business. We’re going to have a show there. I’m going to be giving a talk as well. Dishing, dropping some knowledge on.

There’s some techniques for avoiding no brainer spending mistakes, which a lot of people make improvement in profitability. So after that I’ll be signing copies and giving them away. So make your way down to the Excel center 26th and 28th of November, 2019 and I’ll see you there.

Good on you. Do you have a stand James? Where you whereabout are you going to be, Oh, do you know yet?

Yeah, we have a stand and just a number. I do not have here in front of me. But we’ll be there all day long. Myself and Richard, my business partner, so it’ll be good. It’ll be good to actually, I’ve actually got a very good reaction with the bulk I’ve, I went, you know, I think I might of mentioned, I went to the States a couple of weeks ago and I gave it to customers and they were asking me to sign it and they thought it was great.

And I think actually what goes down best is if we give it to our customers and say if you have a new hire, give them the book and get them to do the negotiation section because any new hire, if they have to deal with salespeople, the negotiation, you know, just arming them with some simple tips on dealing with salespeople is invaluable. And you know, a lot of people don’t do that with that in general. I think it’s good, it gets a real conversation going about. Everyone just thinks improving margin just means, okay, firing people, paying people less, going cheaper on your spotters. But actually I don’t think any, I have the thirty tips here in the book. Probably one or two of them are related to paying less. Would you say Garret, I mean there’s the supplier management stuff.

Yeah. You know, when people think about cost savings that you just said like they usually think about are improving profit to think about these kind of cost savings and I always think that’s kind of a negative way to look at it. And that’s why the book was written from like the insider perspective of how to improve the margin through other ways that don’t involve cutting costs or cutting salaries or cutting people, you know, so more nuanced on intelligent ways of reducing costs in some ways. Even in there, reducing risk and reducing, you know, your business going totally under water through to failure to have the right processes in place and the right people or right procedures, you know. So it’s a very useful book from a lot of kind of different ways. A lot of different areas, you know?

Yeah. So this week’s podcast, we are going to do something a little bit different. It’s going to be more of a tutorial style. And Garret’s going to tutor me on how to do your cashflow planning in our organization. And in this episode we have a companion worksheet. I probably recommend that you download the worksheet, which is a spreadsheet and work through us with this and make a bit more sense and you can get a copy as we have a link of there a bit. The language is bit dot L Y slash GP cashflow template. That’s where you can get a copy, download it. It’s actually a Google sheet. You can make a copy of it, download it, open it, open in front of you, pause the podcast while you do that. Go and get it. So I’ll just repeat that link. It’s B-I-T dot. L Y slash GP cashflow templates and first off, Garret. So cashflow planning. Why give us the basics? What is cashflow planning and why do it?

Well cashflow is is so important for any business, especially a small business because with small businesses, problem with cashflow can be the end our business, you know. So with medium or larger businesses they can kind of continue on. But if you have a small business, it’s like having a heart attack. You’re just out of business, you run out of money, you haven’t got the cash, you’re gone. So what we’re trying to do with this template and over the next two podcasts is really just run, run. Anyone is listening to this podcast and run them through how you can use the simple spreadsheet here to work out their cash over the next couple of weeks or months, you know? And it’s important to do the cashflow I would say at least monthly, if not weekly, I say it probably even weekly depending on how your cash is going and what size of businesses and what your bank balance usually looks like.

And it just really helps to keep an eye on where you are, what income you have coming in, what expenditure you have coming out and what that’s going to do to your bank balance when those things happen. So really just keep a very close eye on what’s going on so that you don’t want it to cash in the cones of shock and you’re suddenly realize, okay, I have to pay this bill or the salaries are going out or I have to pay money to the tax man and I haven’t got the cash actually to do it on. This is a serious event, you know?

So when you say smaller businesses, it stopped basically banks, or businesses, I won’t be able to get the bank to help them out if they go down below zero or ones that might have to raise money or, I mean let’s say businesses doing less than a million plus the real time targets here. Right?

Yeah. Businesses, kind of smaller businesses, you know, where we maybe have 10 employees or less and if you run out of cash, there’s just nowhere for you to get it from. Where are you going to pull it from? You know, medium and the kind of larger businesses have a bit more options that might have an overdraft facility. They may be able to pause pain, bigger suppliers who was to have got credit terms with them or maybe smaller businesses, you know, they don’t probably don’t have an overdraft facility, the banks not give it to them. And with the suppliers? They’re probably not even on credit terms. They’re probably just pay cash when they get the item, or pay pretty quick, or pay up front even. And that’s why the cashflow is super important that you keep a very close eye on that so that you understand what’s going on. You can pay your suppliers to keep the business running.

And these businesses probably can’t invest into huge sums of money that would be required to employ someone like you to keep this on the straight and narrow so they’ll have to do it themselves. And by the end of these two podcasts that’ll be able to do that. That’s the promise right?

The the promise 100% and if they have a, You know, anyone has any questions on this, they can drop an email there. I’m sure James has an email address. You can drop an email addressed to James. He’ll forward it on to me stuff and we can have a look at it for you and even give you some advice or some tips, you know? So, there’s no problem there.

That’s right. I am the media manager for the secret CFO. Obviously, he doesn’t want to give out his own contact details. So, if you want to book him for events. He’s very good at children’s parties, for example. We’re also taking bookings on that. So, let’s do this children’s party special cashflow planning template.

Cashflow planning, yeah. Hopefully everyone has downloaded the a template or have a down in front of you so we’ll just run through quickly. But if you have your own template, this could also apply to one you might have there might use already.

So really, but if you don’t have one you can use this one. It’s quite good. It’s just very simple. And today we’re going to run through the income part of it. So where do you get your money from? How interesting and how important. So, and what we usually start off with any kind of show is you need to have stick in your opening balance and you’re opening balance in this case would be how much you have in the bank or don’t have in the bank if you have an overdraft. And really you just want to get that number in there. So that’s your starting position. And that needs to be the balance as of today or whenever you’re doing your cashflow. So you put in your opening balance, and what you do with that balance is you exclude anything like checks that haven’t gone out or payments that haven’t come in.

Just leave them off for a moment. Don’t try and predict something’s going to come in there and the next 20 minutes or something, just put in whatever the balance is on your bank at the moment. Okay, so you’re knocking that number. The next thing.

I’m doing this as we talk here, so I just put that in.

Good and when you look at this sheet, it already has a lot of formulas in it. So if you click on a cell and has a format, don’t do anything basically any cell that’s green, I’ve colored them in green on the template on my template in any way I colored them green. You can add numbers into them, but don’t the main to the other numbers which have formulas in them, the white ones. And the other important thing to do, but this is about, it’s very important, is you need to keep a copy of this on a weekly basis.

So don’t overwrite your previous one. So whenever you fill this out, you know at the bottom of the template here it says report, but I would just put it in the date or doing the double click on that and put in today’s date or whatever date you’re doing it wrong. And when you go to do one next week, just copied the whole sheet forward into a new, a brand new worksheet and put in the new date.

Okay, so actually you should put in, all right, so you’re going to fill it out and then recopy it afterwards cause you’re always building on what was there before, is that it?

Exactly, you fill it out and copy it. You know you might, you might keep one here as a template, you might copy one right now in case you make a mess or a form that goes in strange, and you copy it as forward put into today’s date. And then when you finish this off, when you’re reviewing it again next week, you just take the one you did from today, you copy that forward and then stick in your new open balance and off you go again.

And as a key reason for doing this and something that I find very useful for myself is when you look back and see what you predicted it was going to happen, you can see then where you’ve made assumptions that were incorrect, and that helps you big time going forward. You know? So in this case where we were going to do is put it, lets put in our opening balance. We’re looking at incoming stuff. So we’re looking at incoming money in this predictor period and then periods we have on this one are by months, and they’re by calendar month as some people might do it.

You could do this, I would probably recommend doing it by week if I’m honest. Eh, you could just change the heading up there two weeks and I give you a 12 week forecast and that’s actually what a lot of businesses use so you could just change October up there and to to you know, whatever to it is you’re doing it on sticking to week or just type of week one, week two, week three blah blah blah across the top or sticking her open months at a time.
Now we’re looking at as we move down on the, on the template we want to see what income do we have coming in in whatever period we’re looking at it. So in this case we to look at the cash coming in, so any cash sales you might have, so basically your income is really only going to come in from a couple of sources. You know you might get a loan, I don’t know, it’s unlikely, but you might get one of them once every five years or something like that. If you get a loan, you can put it in the investment line.

If you get investment, someone is invested money in, in your business or buy shares or or whatever, you can also put that in the investment line. These, these are like one off events, so it’s not likely to happen too much. Most of your income was going to come from sales. You don’t have two kinds of sales, cash sales and credit says so cash sales or sales where someone pays you immediately for whatever they’re buying. So if you’re going round doing work for people and they’re paying you immediately, that’s basically a cash sale. That’s going straight into your hand and you’re going to lodge you straight into the bank that day or in a couple of days, you know.

So we’re not, we’re ignoring deferred income or anything like that for this purpose are we, we’re just putting this raw literally on a cash basis. We’re not working on an accrued basis for this exercise. Is that right?

That’s right. So this and this and this template and this basis were no interest at all in any kind of accounting terms or P and L or a not so punchy. Forget about all that or just concentrating specifically on cash and it’s something most people kind of know a lot about to be honest, because it’s so important for small business. Where all we’re doing with this template is I actually formalizing it. I’m putting it into something that not only you can look at, but your bank manager can look at it. If you’re looking for a loan or your accountant and can look at when they’re doing your accounts and maybe do them quicker and cheaper for you. So there’s lots of benefits to doing it and doing a cashflow. So back in our sales, so we have our cash sales done, then we have our credit sales. So this is where a little bit of, you know, business knowledge comes in specific to your own business.

So what accredited means is that you build out a customer maybe a week ago, month ago, two months ago, and you’ve given them credit terms. So you said to them, I want you to pay us. You can pay us in 30 days, end of month or in 60 days or 45 days from the date of invoice, whatever terms you’ve given them. What you need to do in this case is look back at your sales, see what you billed out back a month or two ago, and then put in what cash you believe was going to come in in the, in the particular period you’re looking at. So for October, you might have billed that back in July or maybe August and now you say 60 days. So August, September, October. So back in August you say I, okay. I billed out 50,000 or I billed at 150,000 of that 75,000 was on credit. They are all on 60 days. So I should be getting in 75,000 in October, which relates to August sales.

So you confused me already here. We just talked about this being on a cash basis. It wasn’t hard. Doesn’t look like put a, if, if you have a credit, you just said it’s cash basis credit.

I mean what’s the purpose of that? Because if I say put in an October and our shoes here, 80,000 Euro in credit and then the cash actually comes in. Let’s say next month, thirty days credit and I won’t, I have kind of doubled up. I will have recorded a twice once in a credit column and once in a cash column.

Yes. You wouldn’t put it in in the credit column. You wouldn’t put it in in October. It’s not, it’s not, it’s not coming into November. Right. So you put a, when it comes in, that’s what I mean by cash. So whenever the cash comes in, you put it.

So what’s the purpose of the credit column then?

the credit is the split between sales, between cash sales, which to see as you get paid immediately, and credit sales, which are sales that are paid after a month or two.

Okay. Honest, this spreadsheet kind of put in that cash and I don’t understand how that’s going to, okay, so what you’re saying is you don’t double entry it. You just say either put it in, if it’s a credit sale, say 60 days you put it in and the credit and stuff that you got paid upfront for, you put in the cash column.

Yeah. So just to be clear, still if you get paid it. So this is all about, now, so when I look at October, I’m putting in sales that I made in October and I got the cash in October. And what I put in the credit in October is sales that I made in August that I got paid in October.

Oh, interesting. Okay, so it’s according to cash for both for your splitting out when it was billed for some reason, how presumed is going to be a big reveal on that as to why you’re splitting it out that way.

Why don’t you just record everything as to cash your you received regardless of when the invoice went out?

Because you want to track money you’re making from an immediate sales, I want money you’re going to make done the line because you don’t put in the credits one, then you’re not going to be able to remember what sales you did two months ago. That’s what you split it out you see. I did sales two months ago. What did I do two months ago? I did 75 grand of sales. I want to get paid down in October. So you type that into October a separate, you know?

Okay, so you can actually fill it out a little bit ahead of time.

Exactly. This is a forecast, so we’re going to start filling out, no, all the way across, so we’re only looking at October, but of course for sales for November, December, January.

First of all, I’m going to say, well, I know that I go round, and I sell to these particular people and they pay the people pay me cash and I know I get at least 50 grand in cash a month, so I go into October 50 grand, November 50 grand, December. Okay. December, just probably a week gone there. It’s going to be quiet. I’m not going to get 50 grand. I might get 35. January, then maybe 40 February back at 50 March 50, April 50, blah blah blah. Then you say credit. Well, okay. I can work that credit out quite easily because for October, I look back to August and I see I did 75,000, so I put 75,000 in October, November. I look back to two months ago in September. What did I sell in September? And, I sold 100,000 so I post a hundred thousand to November.

Then I’m in October. And I say, well, what am I selling in October? What does October look like? And say, well, October was a good month. I’ve done 160 thousand, so that’s in credit, so that’s going to come in in December. So I go into December and I type in 160 thousand. And what that’s actually done there is given me really good visibility on what your income is going to be in December because you’re able to split it there between cash and credit and you can see actually, you know, I know my sales in October were 160,000, and I know to pay two months later and that’s going to come in in December, so I can put on really good confidence. I can put 160,000 into December. Then it gets a bit, you know of more about, you know, what you think yourself is going to be or looking back historically. Then you fill that in for the rest of the year or for whatever period you’re looking at. Just fill out those columns the whole way across, you know?

Okay, got it. So I’m putting in here what we’ve spent, of what we did last month plus what we expect to grow by each month. I’m putting out in our cash column even though we get paid by credit card. So we got paid by credit card on subscriptions. So we will put that in on a cash basis. So maybe the best thing I should do is look back at our cash received last year cause we have a mix of annual and monthly subs. So I need to look back at the annual subs we expect to get again, which I can probably look at again for the next 12 months and put that in the credit column I guess.


And then in the cash column I can put in all our monthly subs.


It’s the one that’s it. So we can fill those out and you know that good thing gives you a forecast out to the end of the year, so that’s pretty cool. Then we look at everything solely of VAT refunds here. So VAT in Ireland is basically tax on any products or services sold in the state and so you, whatever country you’re in, you might have different taxes or different VAT or this or that or whatever. So you can use that row there to fill in those columns. So the VAT really is, you either have a payment of VAT, or a refund of VAT, I’m not get too much into the VAT but basically. That’s really for anything to do with tax. So if you have any money coming in because of tax, you can just stick into that column. And then we have our final column which is other income or income could be. What could that be?

It could be like interest on a, on a, you know, maybe have a deposit accounts you get interest on that. It could be anything like that, you know, it’s not really specific to your sales but other income that might be coming into the business. Maybe there was an insurance claim, maybe there was some people, guess when the go off sick, leave the tax man actually pay for their sick leave and that money would come into you as well. So this is kind of how really hard to predict on, it’s just like up and down. It could be anything really. And so eh, you can put it, you know, usually what I would do is just putting maybe five random on something in there for some non predictable coming in.

I finally then, we have four rows there in other one to four on. Really that’s really specific to your business. So if your business has some kind of other income, common end is not really covered at all under this stuff, but you want to analyze it out separately. I know why we generalize it separately, whether it’s, it might be significant amount of money or it’s predictable. So for either of those reasons you’d be better off analyzing those separately so that you can follow it through the year. And see it there separately and you can fill in those columns with that kind of money and then that all adds up. Basically you get your total income by each of those periods.

Pretty good. So this is great. It looks like I’ll be loaded by the end of the year.
We’re done, this is fantastic.

Unfortunately there’s another half to this cashflow, which is all the money you have to spend a day. I think we’re going to cover that one in our next podcast.

Oh, what a cliffhanger. Well, Procurement Express be absolutely worth millions of millions of dollars by the end of the year. Or, is there some mystery thing that could mess up my cashflow here while we, I’ve decided to split this into two sections because you can only take so much excitement in one podcast we’ll wrap it up there next week. Tune in next week when we will go through the second half of the cashflow planning sheet and Garret’s going to give us some more tips on how to avoid driving your business into the ground. All right, right. Very good. Looking forward to the next part.

All right, man.

All right folks. There you have it. That wraps up our conversation with James Kennedy and Garret Carragher. They shared a ton of valuable insights and advice today on how to track your income using their brand new cashflow template. We also shared some tools and resources which will all be in depth in the show notes. Don’t forget to click on one of those links to get a free chapter from the book, profit Leaks by James Kennedy and Garret Carragher. I hope you enjoyed our conversation. Please consider subscribing, sharing with a friend or leaving us a review in your favorite podcast directory. Until next time, best of luck in all that you do and we’ll look forward to seeing you on the next episode of Gross Profit Podcast.

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