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Cash Flow

Your cash flow should be recorded usually in a spreadsheet - your cash flow is literally all the money that comes into and goes out of your business. Although it is called cash flow - the movement of cash doesn't have to be in the form of only cold hard cash - it can be electronic, check or any other form that can be related to cash.

It's worthwhile making a note of your incomings/outgoings each day and trasferring them into a spreadsheet each month - depending on your business you might want a little notebook or in today's modern era using an ipad or some other device if you are at business premises.

When recording transactions you should usually keep receipts on the left and payments on the right.

Transactions should include the date, details of the transaction, type of transaction (cash/credit card etc.) and finally the total cost of the transaction.

In order to complete your cash book, you will need the following items of paperwork:

  • Purchase invoices received from suppliers
  • Sales invoices raised to customers
  • Details of cheques written and cancelled
  • Cash received and payments made
  • Bank statements and paying in book
  • Recording payments made (outgoings)

You can download a free monthly cash flow spreadsheet which resembles the below screenshot...

Please note this spreeadsheet is completely ficticious - it's just to give you an idea of how to add up the numbers.

The cashflow surplus / deficit is the difference between how much money you've taken in subtracted by the amount of money gone out each month. Red fingures means you've spent more money than you've taken it for that particular month...quite often this is because you've purchased a lot of stock that might last you a while.

The opening cash balance is how much money you should have at the beginning of the month.

The closing cash balance is the amount of money you should have in your bank on the last day of the month.

One of the major issues of cash flow is businesses incorrectly enter cash paid or taken in to be the same day as the invoice - it isn't most of the time. Businesses mostly allow a few days or whole month credit to pay the money. So it's really important to keep track of what you've paid and the payments collected using sales and purchase ledger books. The cash flow should be the actual day money transfers hands.

Remember if your business pay sales tax to extracate this sum from the total of each payment.

Bank reconciliation is extremely important each month - you need to make sure after you have totalled the monthly figures that the cash flow spreadsheet reflects the amount of money in your bank account.

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