Prioritising Your Cash Flow

Posted by Natalia Atapina on Oct 7, 2015 4:05:16 PM

In cash flow, Expenses, Financial Reporting, Planning, Profit and Loss

Managing your cash flow is more than simply looking at what goes in and out of your accounts and paying your bills on time. Here, we suggest how to prioritise your cash flow to make the most of what is available to you while moving your business forward.

• Pay your expenses and accounts in order of priority- not simply by which is due first.
• Set up separate holding accounts if this helps you manage your money. These can be set up online, with no account keeping fees, and they often pay interest monthly.

1. Pay Yourself First (10% of revenue in or a set amount)
This is savings for future opportunities. Have it automatically withdrawn and put into a separate account – not to be touched! There is no down side to saving. The worst case is that you always have the money!

2. Group Tax, Super and GST (20% of wages and another % based on your GST position)
This is an allocation for monthly and quarterly tax payments. Ideally put in a separate holding account, away from your business transactional account, until required.

3. Personal Development
This is an allocation to invest back into you. Investing in training courses, coaching, books, audio books, seminars, etc, that will grow your level of thinking and skills is a habit of all successful business owners. Your business growth and ability to handle it will not grow faster than your personal growth.

4. Team Wages – including you!
Pay your team and allocate a wage to yourself based on the value that you bring to the company. That is the amount that it would cost to replace you in the business with a salary earning executive, taking on your responsibilities.

5. Essential Running Expenses
These are the expenses required to keep the business open and making sales. It may include rent, power, postage, phone, supplies for goods sold, etc.

6. Non-essential Suppliers
This may include expenses that are not absolutely vital to the making of sales. For example, cleaning, some stationary, some printing, etc.

7. Cash Surplus
Allocate a minimum running balance in your main account, and at the end of the month, move any excess cash into savings or investments. Keeping a low balance in your main account will keep you on your toes and avoid complacency.

For assistance on cash flow and financial forecasting, please contact Tradies Accountant today.