December 24, 2019

Cash Flow Planning Pt 2

On this episode of The Gross Profit Podcast, James Kennedy and Garret Carragher continue their discussion about their free cashflow planning guide.
Gross Profit Podcast
The Gross Profit Podcast
Cash Flow Planning Pt 2

Show Notes

On our previous episode, we discussed the importance of cash flow planning and introduced our new cash flow template to help you track money across your company. 

Last week’s discussion dealt mainly on how to track money coming into your company, so today we’re turning our attention to all the outgoing money that is moving outside your business. We’ll invite you to follow along on your own copy of the template, linked up in the show notes, so you can learn how it works and what it can show you. 

On this episode you’ll hear:

  • Ways to record your setup costs
  • How to distinguish cash and credit expenses 
  • Different ways to think about overhead
  • Other ways to look at outgoing money
  • How to connect your incoming and outgoing expenses into a final assessment

If you’re looking for an improved system for tracking the money across your company then this is one episode you won’t want to miss.


How To Record Setup Costs

In our last episode, we explained what cash flow planning is, the importance of doing your cash flow planning properly and how to separate your cash sales from your credit sales. We also discussed how to factor your taxes into your cash flow planning and the best way to track any other sources of income. Hopefully, you have already listened to this previous episode (if you haven’t, you can here) and now, you’re eager to find out what the next steps in your cash flow planning should be. If we pick up from where we left off in Cash Flow Planning Pt 1, you now need to record your setup costs. 

Your setup costs will be the money you have at the start like for example, an investment from revenue. Put any outgoings for items (e.g. tables, chairs, etc…) under “Fixed Assets”. Any cash you spend can go under “Cash” and if you have any stock, put that into the “Stock” row.

How To Distinguish Cash And Credit Expenses

Now you need to organise your outgoings – starting with making sure you separate your cash and your credit expenses when you are doing your cash flow planning. Cash purchases are purchases that are paid for immediately. Credit purchases are purchases that are based on agreed terms with your supplier. An example of a credit purchase would be to pay 10% upfront and the rest in 90 days.

Different Ways To Think About Overhead

Your overheads are important because if you split up what your overheads are, predicting your next few months of overheads becomes much easier!

Your heading has to make sense, so that splitting the overheads actually works. Also, anything that will affect your cash flow needs to be included.

Other Ways To Look At Outgoing Money

Once you have split up your overheads, you can start looking at finance costs. These could be loan repayments, interest on loans, private drawings, etc… As well as these things, you need to factor in fixed assets you have purchased. If you are purchasing stuff, it will affect so many different things, like the salaries of your staff and any other outgoings. You want to have a full understanding of your cash impact.

After this, you need to record any taxes you have. VAT receivables (that occur when you pay out more VAT than you have received) and VAT payables (that occur when you pay out less VAT than you have received) should be recorded as well.

Connecting Incoming And Outgoing Expenses Into A Final Assessment

Connecting your incoming and outgoing expenses into a final assessment is extremely beneficial. You’ll see any incoming red flags by doing your cash flow planning on a regular basis and this can help you avoid damaging the finances of your business. You can plan out which resources you would like to spend more money on with the right understanding of how your incoming and outgoing expenses have been going thus far.

Most importantly, you can hit your revenue targets with more success each month by knowing how much profit needs to be taken out of your business.
Be sure to subscribe to our podcast and if you still haven’t checked out our Cash Flow Template, you can find it here!

Transcription of This Episode

I’m Ryan Cowden and this week we’re joined once again by James Kennedy and Garret Carragher. In this episode of the Gross Profit podcast, James andGarret revisit their new cashflow template and talk about how to use it to track all your outgoing money. On our previous episode, we discussed the importance of cashflow planning and introduced our new cashflow template to help you track money across your company. Last week’s discussion, dwelt mainly on how to track money coming into your company, so today we’re turning our attention to all the outgoing money that is moving outside your business. We’ll invite you to follow along on your own copy of the template linked up in the show notes so you can learn how it works and what it can show you. On this episode, you’ll hear ways to record your setup costs. While these costs may not stay on your books forever, you will want to stay organized about all the expenses that accompany the early stages of a business or a project.

Next, we’ll talk about how to distinguish cash and credit expenses. Cash expenses are expenses that were billed and paid within this time period. Credit expenses on the other hand, refer to expenses that were incurred in the past and are being paid in the present. Then we’ll discuss some different ways to think about overhead. There are a lot of potential overhead costs a business might have and it’s important to categorize each significant category so you can accurately see where your money is being spent. After that, we’ll share a few more ways to look at your outgoing money. From finance costs to taxes and other fixed expenses, we’ll share a host of ways for you to consistently visualize how you’re spending your money.

Finally, we’ll wrap up this two part conversation by showing how you can connect your income to your outgoing money and put a final assessment on your company’s finances. If you’re looking for an improved system for tracking the money across your company, 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.

So welcome back to the Gross Profit podcast. It’s James Kennedy here, CEO of where we help hundreds of companies safely spend billions of dollars each year. And this is our part two. I’m joined again by Garret Carragher, the secret CFO.

Hi James, how’s things? You have a good week?

I had a brilliant week. It seems like there’s no time at all. It just went like that, bang.

Just flies by, doesn’t it? Time, it just flies by. This week I was doing such an enjoyable stocktake, it made my week. It was just brilliant times. I’m grateful and I recommend if anyone has any tales to tell us on their stocktakes, please send it on and we might do a special on it someday on how to do a stocktake and to make sure you don’t lose your short. Although maybe people listen to us are all digital natives and they don’t really have any stock. They’re probably drop shipping everything including all their homework into school. No one really has stock anymore. You don’t have any stock, James, do you?

Well, now I have stock. I have the Profit Leaks book. I’m looking staring at it. Got actually four boxes of it across from me there, which last week you would have learned that we’ve finished it and we’re starting to giving it out. So, that’s the only stock I have. Actually, we’re going to send a copy to all our customers I think. That’ll be good. Maybe not all of them, but most of them anyway. Or maybe new people who sign up. When they sign up for a trial at, it’d be nice if people got actually a copy of the book in the post, don’t you think?

I think it would be super useful for them and help them to get into the culture of Procurement Express and get signed up. And if people want to buy a book, James, what website do they go to?

You can go to, you get a free chapter, get on the mailing list and then you’ll find out how to get a copy of the book that way.


Okay, so we left our listeners on an IFE edge last week. We were working from a cashflow template Garret’s put together. You can get a copy at So that’s GP for Gross Profit, cashflow template. So it’s And last week we went through how to fill out the income side of that. So we covered a couple of little cases there you might have considered versus cash versus credit, income, VAT refunds. Couple of other things. So I’d encourage you, if you haven’t listened to that part of the podcast channel, you have to go back and revisit that and then catch up with us here and we’ll continue.

We also go over some of the reasons why you might want to do some cashflow forecasting, why you should be doing it, benefits of it. So yeah, let’s go do that. Once you’ve done that, come back. And now, where we were last week, Garret, I had put in the income, which I’m projecting over the next year. My bank balance looks absolutely fantastic by the end of it, but unfortunately we’re going to have to do the outgoings this side, so I’m going to start off with setup costs I guess.

Yeah. Yeah, exactly. Yeah, we’re going to have to put in our outgoings. So if you have the spreadsheet, we’re going down now to row 36, around that, unless you’ve added a few rows yourself. You want to head down to row 36. Again, as usual, any green cells you can change or add in numbers, no text please. Any white cells have formulas. Do not touch. Thank you so much. So we’re going to look at outgoings this time. So for business, you might have set up costs that, if you’re starting a business or getting a business going, this can be something you can have at the start. So that’s where you might’ve gotten an investment when we looked at revenue last week, our income. You might have some investment going into the business for a startup business, so you might pull out your savings and you invest 200 grand in your business.

And then this is where it’s all going to get spent under these three rows, which is under fixed assets, spending money on cash, outgoings on cash for setup, and then also maybe on some stock to get you going. So in these things you put in, like you buy tables and chairs, these are all like fixed assets for your business, computers, laptops, even software. It can be counters. All that kind of stuff goes into fixed assets. Cash might be where you just spending out some cash, maybe you paid delivery driver to bring this stuff over. Maybe you buy some consumable stuff, stuff like that, just to get you going. Some fixtures and fittings for the business that maybe are just too small to put into fixed assets. You’d have a limit set up at the start. And then you would have some stock perhaps, but not a lot of people have stock as we’re seeing. But if you do have some stock, go into that column. So that could be one of your biggest spends to get your business going.

After that then, and these are all outgoings. So again, we’re really looking at cash going out in the period you’re looking at. As we said last time, the periods on this are calendar month, which you can also change them to weekly. You can change them to every fortnight, whatever works for you. Depending on the business, but most people would probably do a weekly cashflow to understand what the cash is looking like. I’m sure they’re not going to have any problems with their bank manager, because nobody wants that. Isn’t that right, James?

That’s true. I mean you go to zero, you’re done. You slam into the ground, no cash left. I guess most people would be in some sort of cash crunch at some stage in their career and it’s not pretty. So I guess it’s the number one thing. That’s the typical thing that small business CEOs or managing directors keeps them up at night. You always talk about people worrying about making payroll, right? These things are tough.

So I guess the benefit we’re trying to get to here is that you don’t want to be in that situation. A lot of cash countries are very predictable if you bother to try and predict them. It’s not like it’s unusual, it’s just you put an effort in something else. You’re all chasing sales or doing whatever. But a little bit of planning ahead of time can avoid that very awkward, the sleepless night that you get trying to wonder how you’re going to pay everyone, which most entrepreneurs have been there. I know I’ve definitely been there. It’s not a nice feeling. You just want to avoid it so you can stay positive and focusing on something else.

Exactly, yeah. And I’ve even, I know we’re talking about smaller businesses here, I have worked in medium-sized businesses that had maybe 15 million of turnover and they had incredibly cash problems. I cannot tell you that we actually couldn’t pay the wages one time, we had to put people on… What’s that word I’m thinking of? Protective notice, which basically means you can get fired and also people ended up… Another one was we would just let everyone out the door, good luck to you, come back in two weeks so we could save the cash and the wages. And this is sad but true, but we’re able to predict this because of the cashflow. We knew it was coming and then we could adjust for it to make decisions. But without the cashflow, the company would’ve been closed or the people who had been working, wouldn’t have got paid and then we would have been in real trouble. That would have been real trouble. So cashflows are super important to keep a close eye on.

So we’ve talked about our setup costs, probably only once in a lifetime candidate or once in a business lifetime kind of thing. So maybe once you’ve got that done, you move on, you might even take those rows out if you wish. Then we look at stuff like purchases, again, split between cash and credit. So what’s the difference? So cash purchases means you’re going out, you’re paying for it there and then. So you’ve gone to a shop, you’ve gone to a wholesaler and you’ve bought the particular products or items, whatever you require at that time and you pay it straightaway by credit card or whatever it is, your debit cards. You pay the money immediately.

Credit covers where you have agreed terms with a supplier. So your terms might be paid 30 days after invoice, or pay 60 days after invoice. I pay 10% upfront and the rest after 90 days, whatever it is. And with the credit, you can actually look back and see what you bought a couple of months ago or whatever your terms are. But say it’s two months ago, so it’s 60 days credit. Look back two months ago, what did you buy on credit? That’s going to be June and October. So you look back to August, you see, “Okay I purchased 65 grand worth of product or services or whatever it was and that’s due to be paid in October.” So you can actually forecast very accurately for a couple of months actually based using this because you can look back over a couple of months and see, well, I know in August it’s going to tell me what’s due in October, September is going to tell me what’s due in November, et cetera, et cetera. And you can run that out to maybe December and then from then on it’s a bit more of an estimate.

And that’s why, even though this cashflow was showing over a 12 month period, a lot of people would do a 12 week cashflow. And the reason they do that is just as I told you, you can actually look back and forecast quite accurately from October, November, December. You can actually forecast quite accurately at three months. One of your biggest costs will be purchases or stock or items or sub-contractor payments or whatever. So it’s really good to get that in there and understand what’s going on.

So I can see that you’ve split up overheads here by staff, production, premises, transport. What’s the thinking in splitting it out this way? I mean staff I can see because it’s kind of easy to go to your payroll and get an idea of what that is. Production, what would you put in there is just like cost of goods sold you’re putting in there?

Yeah. It’s then to do with production. So it might be items that were bought in to help [inaudible 00:12:18] cost of goods sold, maybe trans… Oh no, transport is separate there. So really what these overheads are doing is all it’s trying to do here is if you split out what your overheads are, you can more accurately predict what they’re going to be like over the next few months. And also you won’t miss them as easily. Whereas if you just have one row, same overheads and you type in 85,000, what is it made up of? Who’s in there? How would the cost change based on what time of the year it is or what month of the year it is, how you know what’s going on?

So straightaway with staff, we can immediately say, “Okay, we pay on a calendar month or we pay every fortnight or we pay bonuses at Christmas or we pay bonuses twice a year. Maybe we give them vouchers at Christmas.” So all that stuff. In my own business there, I had to stick in vouchers at Christmas and that was a significant amount of money. And it’s good to… When you look at staff you want to see, “Okay, well, what money I’m going to pay out there?” It’s not just going to be the salaries or the wages. So that’s the thinking behind that.

Okay. So I see that. So I would say split out… In our business, we would split out HR and then we fit everything across development, which we call our software, our programmers and our product marketers and people like that. And then we’d have our marketing costs and then we do our overhead, I guess. Which is overhead we’d include things like rent and salon, sales, which might involve commission and success. So I guess you can play with these to make some sense or you don’t have to use those headings. You can use a heading that makes sense for your business.

Exactly, use a heading that makes sense. And what’s important is to use a heading for anything that has a significant effect on the cash. That’s super important. So say in maybe your case, James or in other businesses that are online, maybe Google AdWords has a significant impact. Maybe a lot of money’s getting spent on that. And so it’s important then to have that as a separate line so that if you go and do a massive promotion in December for your Christmas collection of dog tags, James, then you want to be able to have that listed out separately so that you see, “Okay, we’re having so much in October for Halloween. We’re having so much in November, but then on December we’re having a massive push. We’re actually going to spend on Google AdWords a massive amount of money and that’s going to hit our cash significantly at the end that month.”

So there might be a time lag on that because you go, “Okay, I’ll have to pay all that out in December, because Google is pretty tight on the collection, but guess what? My sales are on credit and I’m not going to get paid til February or March.” So that’s really suddenly you’re going, “Hmm, this is not looking that good. There’s going to be a bit of a credit crunch here for us in December. We need to actually think about that a bit more. How can we get money in to help us there or we’re going to have to lower down our Google AdWords spend to make sure we don’t go too much into red and suddenly hit the bottom.” You know?

So what I’ve done there is I’ve just taken our spend for last year on those categories and I’ve just put them in again this year as a basis. Is that the way to do it?Because you’ll have different things at different… Like we might prepay for hosting for three months like we did last year, but we probably won’t do that again this year. But there’s certain spikes, VAT for example, or taxes go out every second month, things like that. So would you base it off last year? I mean, just the best you can do is it or is there something else you do?

Yeah, I think that’s a good way to use it for seasonality. That’s an excellent idea for seasonality. So I’d definitely use last year for seasonality, but when you’re actually looking at it for yourself for this year, you really do need to go through the numbers and see what you’re probably likely to spend. And you can see that quite clearly. If you look back over the last three or four months, you should see a pattern. So, has your staff changed? I don’t know if it has or not, but you would basically put in the same salary costs across each month.

Then, say you get to December, you go, “Okay, I’m going to give these guys a bonus. I’m going to give them some vouchers and I’m going to fire three people. How’s that going to affect my outgoings? And in January, I’m hiring four new heads. They’re on these salaries. I need to build that into my cashflow. They’re going to start getting paid at the end of January. So I need to have that baked in there as well.” So it actually is about getting a bit into the detail and obviously you know your business inside out, so it’s more like get into the detail and making those changes on the sheet to really reflect what’s happening.

So, as we move along then we can see… So you fill all that out. You fill out your overheads. So we’ve got some headings in there. You might have different headings, whatever works for you. The key thing to keep in mind is anything that has a significant effect on the cashflow should we reflected in a separate heading. That’s super important. So whatever that is for your business, be it transport, be it carriage in or out, be it staff, there are different kinds of staff or maybe sub-contractors or part-time staff or whatever it is, advertising on Google AdWords or in the newspaper or known design mobile, whatever it is, make sure it has a separate heading listed there and you can see clearly that amount of money going out.

The next thing we move on to is finance costs. So that’s really just stuff to do with your bank. So any loan repayments you’re making and also maybe any interest on loans and stuff like that should be recorded in there. And then we have private drawings, which is basically if the owner takes some money out of the business, so you could put in there any money you’re taking out of the business yourself if you’re not getting paid on the staff.
We move on then. So this is again all about cash, so we’re thinking cash, cash, cash. So what else could we use our cash for? We could buy some fixed assets. Now we had some assets obviously up in the setup cost, but once you’re set up or running, you don’t need to put the assets in there. So you might buy some assets as you go along during the year or as your business continues, you’ll obviously be buying stuff. So maybe you have a new starter in December. That’s going to affect your staff salaries. You need to reflect that in the cash.

But also, you have to buy this person a laptop, maybe you hired them a new car. Or no, that wouldn’t go to fixed assets. But maybe say you hire them a new car, that would go into transport. And maybe on the fixed assets you buy them a laptop, you buy them some PP equipment, you buy them a desk, a chair, all this kind of stuff. That should all be recorded in there as well so you get the full kind of cash impact of anything like that recorded and you can see it running through your numbers.
Then we move on to our tax. Usually again, as we discussed last week, any money that’s going in or out to the tax man needs to be recorded in there. So that really comes under paying the tax on salaries, like your P30s, which come out every month and also any VAT returns. So in income we had VAT receivable. So VAT receivable can happen when you payout more VAT than you received in. So if you bought more stuff that had VAT on it than you sold, that means then you should get a VAT refund. VAT payable then is the opposite. And so you record that then on this line and make sure that’s in there. You don’t want to be messing with the VAT man or the tax man under any circumstances.

And finally, from row 64 to 67 on our template we just put in another one, two, three, four. And basically that’s for anything that’s specific to your business that’s not really captured under the other headings that has a significant and important effect on the cashflow. And I suppose it’s up to each person themselves to kind of think about what is significant for them. Some businesses, five grand significant, other businesses, 150 grand is significant. So the kind of business we’re probably talking to here, James, are kind of smaller businesses. So you want to capture as much information as you can in there under Other and analyze it out.
Because it’s amazing what you can learn, you can suddenly see, “Oh Jesus, I just realized actually we’re spending a lot of money on this Google AdWords campaign and we should have canceled that two months ago.” Or you can see, “I can’t actually hire this new salesperson because I can’t afford them in the cashflow,” or, “I can only afford to get the new person if I have these additional sales. I’m going to sit down with the person in sales and marketing and just run through the numbers with them again to make sure we’re actually going to deliver on these sales. Otherwise, actually I can’t hire these people and I can’t have that fit in the cashflow.”

So once you’ve done that, you fill it out to the best of your ability. As I said last week, you should be filling this out every week really and looking at it every week. You should save a copy of the previous one. Do not overwrite your copy. You can look back and get great insights. And the cashflow then will give you a net cashflow on row 72, which basically is your incomings and that’s your outgoings, and that could be positive or negative each month. And then it’ll give you a final… Obviously you don’t want it too negative each month or otherwise you’re going to run out of cash. And then you have your final balance, which is basically what is net in your bank accounts or all your bank accounts added up. And you obviously, if you don’t have an overdraft facility, that number needs to stay pretty positive. Otherwise, you’re going to be in trouble.

Very good. So I can see here straightaway that I’m able to play around with, “Hey, what happens if we triple our marketing spend? Can we afford to do that? How long will it last for?” I can see how you can basically kind of scenario planning with a couple of things because yeah, it’s good. I like it. I mean, what I like about this is actually, sometimes you… An insight I had recently was that we report on our numbers actually daily in a standup, the key KPIs. We should go back to our KPI episode. You’ll see how we discuss that. But what I only recently realized was that by looking at the full numbers daily, you lose context. So numbers can change very slowly over time and then over a year there might actually be a significant swing that you kind of miss if you’re looking at the numbers every day.

So what this allows you to do is project forward by a year and give you that macro look at what you’re doing. Kind of a jungle so to speak, look at both the canopies or whatever the expression is. And you see, okay, where the trend is you’re going. Because I made, I’ll tell you, this is a mistake I made literally the last few days was that I was looking at our number of leads coming into the business every day. And we know what happened over a period of two years. Some channels significantly atrophied or we stopped our marketing with them. And the difference day to day was imperceptible, but when you look it back over at, say a year, it’s a huge difference. Massive difference. And slowly we’d stopped spending less and less on particular channels. Truly impacted on the number of leads we were generating. And you lose that if you’re looking at the day to day numbers too closely, you need to step back and look at a year or more maybe in order to effect bigger changes.

Yeah, that’s a good insight, James, and that probably ties back as well from finance and anywhere to a couple of episodes we did on budgeting. Because again, when you’re looking at your numbers in those cases, if you can compare those numbers to a forecast or a budget that you had believed the numbers should be at, you can immediately see a variance and the variance then would raise a red flag like and immediately you go, “I was looking at it from a finance point of view, but if I was looking at sales through different channels and I could see then we budgeted so many sales through channel X, but it wasn’t delivering on that number or was down significantly on the budget,” then that would immediately raise a red flag for me and say, “Well, okay, I can see overall the sales are going up, but on one particular channel we’re not really following up on this. We’re not really capturing what we thought we would in the budget. Now is that because we’ve put more resources into other channels or is it actually because we’re failing to do our job properly on that particular channel and we need to go back and have another look at this channel?”

Good stuff. So I have to say, Garret, this was pretty good stuff. I did a copy as we were talking along here and I guarantee you’ll get some insights. I’m interested by the idea of doing it weekly. You need some discipline to do that I guess. You need to carve out the time to do this. And you’re saying, if I look at this every week, I’ve done mine by months now. So if I do this every month, I suppose the real benefit of all of this is making sure you have enough money to run the business. Right? Make sure you don’t go to zero.

That’s it. That’s what a cashflow is about. Exactly.

Or if you’ve got certain revenue targets, which I’m very excited to talk about next week, which is looking at putting your profit first. You can put your profit in as a line here for example and you can say, “Okay, this is…” what you alluded to do there is drawings for the owners of the business, but you can put that in as your profit as well. You can book that in as required amount of profit to be taken out of the business each month and make sure you still do that not to the detriment of the overall cash position of the business.

Yeah. That’s an interesting idea. Yeah, I hadn’t thought of that. I know you’re going to discuss that next week, so we’ll leave that one to next week and let people think about that. But again, if people have any questions on this template or have any cashflow issues or questions they want to ask us, can they drop you an email? Can they, James?

Sure. You can email [email protected]. I’m on Twitter, James Kennedy, and that’s it. Thanks for that, Garret. That was very interesting.

No bother. Thanks James. Talk to soon.


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 outgoing money on their new cashflow template. We also shared some tools and resources, which will all be linked up 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 the Gross Profit podcast.

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