Cash Flow

What is a Cash Flow Forecast? Do I Need A Budget?

Lack of cash flow can be the difference between success and failure for small businesses – the planning of cash flow can reduce stress for both you and your creditors and the knowledge that you have money spare allows you to expand.

Accountants & Bookkeepers are in an excellent position to undertake the preparation of Cash Flow Forecasts due to their in-depth understanding of the operational aspects of small business. Bookkept uses Xero to ensure your information is up to date and that cash flow reports & budgets can be made at a moments notice.

This blog post will show you why you need to prepare a Cash Flow Forecast and, in doing so, will cover the following topics:

  • The need for constant cash flow
  • The importance of cash flow forecasting
  • Cash flow vs budgets
  • Cash flow Tips

The Need of Constant Cash Flow In Small Business

Cash is the backbone of a business. All businesses need to ensure they have sufficient cash to pay their bills – the loss of a supplier can be fatal for anyone. Cash is needed constantly for payment obligations which arise from many sources, including:

The Australian Tax Office

  • Superannuation Guarantee obligation arises each quarter – many of our clients pay this monthly to take a small cash flow hit.
  • GST is due monthly or quarterly with your activity statement depending on your turnover.
  • PAYG Instalments are designed to cover a businesses income tax liability for the year. These amounts are due at the same time as your activity statement.
  • PAYG Withheld from wages are due with the activity statement, and are often a hidden surprise for businesses who do not plan cash flow. The net wages each payroll are only half the battle – income tax still needs to be paid on this to the Tax Office on behalf of your employee.

Suppliers & Creditors

Money owed to suppliers can be due in 14, 30, 60 or 90 days. A healthy relationships with these other business requires that you have cash available so you can make these payments on time. It can be easy for forget that these suppliers are in the same position as you and are trying to juggle cash flow monthly.

When Bookkept has over site of the bills we recommend that our clients:

  • Ensure payment terms are understood & are fair.
  • Avoid refusing payment without first contacting with your supplier.
  • Review prices & terms for each of your preferred suppliers against any competitors on an annual basis (at minimum).

Having the cash to pay bills up front can often mean you’re able to negotiate a discount which provides a valuable advantage you have over local competition.


The number one way to damage your working relationship with employees it to pay late, or pay incorrectly. Payroll is a very emotional part of business where a misstep can cause deeper ramifications than you expect.

We manage the payroll for a number of our clients to ensure this doesn’t happen, giving business owners a chance to remove themselves from the stress.

Is A Cash Flow Forecast Really That Important?

A cash flow forecast tracks the cash coming into and out of your business for the next 6 months at minimum. An accurate cash flow can be difficult to get right the first time for businesses, and there’s often expenses that fall through the cracks.

It enables you to estimate peaks and troughs of cash and therefore whether you have sufficient cash to fund your upcoming payments. Importantly, it alerts you to when you may need to take action by discounting stock or getting an overdraft, for example – to make sure your business has sufficient cash to meets its needs. On the other hand, it also allows you to see when you have large cash surpluses, which may allow you to negotiate with suppliers for bulk purchases at a discount or allow you to purchase assets to make your business more efficient.

What’s the Difference Between A Cash Flow & A Budget?

While budgets are designed to predict how a business will perform over a given period. they include non-cash items, such as depreciation and outstanding creditors. Budgets are a valuable tax planning tool, as a number of tax deductions may not be the same as the money you’ve actually paid.

A Cash Flow Forecast focuses on the cash position of a business at a given period. Non-cash items do not feature. In short, budgets will give you the profit position; Cash Flow Forecasts will give you the cash position.

Cash Flow Tips

If a customer refuses to pay or can not pay the full amount, you should perhaps consider whether you deal with that customer to protect yourself against non-payment. An alternative is ‘cash on delivery’ terms.

Any invoices for sales should be sent out immediately. An “end of the month” invoice process will delay the time which the customer gets your invoice, and therefore will delay the time which you get paid!

Offering discounts for a full & up-front payment can tip the scales in your favour in regards to debtors. No-one likes having a lot of money owed to them and there’s no benefit in having debtors.

Set up a deposit system, where large invoices require a small upfront payment – this can make it easier to buy materials or pay wages for the staff required on the job.

While it may be tempting to fully stock the shelves for your busy period, carrying excess stock comes at a cost. If you’ve got stock sitting around, it means you don’t have cash in the bank. A good relationship with a supplier can mean the difference between getting stock in 1 week or getting stock in 3 weeks.


If you are looking for cash flow guidance or thinking it’s time you made a change of accountant, please give us a call on (03) 8568 3606. With over ten years of combined experience working with a diverse range of clients, Bookkept is well equipped to assist your business. We offer bookkeeping & tax services, and would love to help you succeed.

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