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 is a projection that estimates the amount of cash that will flow into and out of an organisation over the course of at least the following six months. It can be challenging for firms to establish an accurate cash flow from the very beginning, and there are many expenses that are overlooked as a result.

It makes it possible for you to estimate the highs and lows of your cash flow, and as a result, determine whether or not you have enough money to pay for your forthcoming obligations. Importantly, it notifies you when it’s possible that you need to take some action – such as getting an overdraft or discounting products – in order to make sure that your company has sufficient cash to meet its needs. On the other hand, it enables you to determine when you have substantial cash surpluses, which may enable you to negotiate with suppliers for bulk purchases at a discounted rate or enable you to purchase assets that will make your organisation more efficient.

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

Although budgets are created with the purpose of forecasting how well a company will do over a specific time period, They consist of things that cannot be immediately converted into cash, such as depreciation and unpaid creditors. As a result of the fact that a lot of tax deductions can not equal the amount of money you’ve actually paid in taxes, budgets are an extremely useful tool for tax planning.

The cash situation of a company at the end of a certain time period is the primary subject of a Cash Flow Forecast. There is no mention of non-cash items. In a nutshell, budgets will tell you where you stand in terms of profits, whereas cash flow forecasts will tell you where you stand in terms of cash.

Cash Flow Tips

If a customer refuses to pay or is unable to pay the whole amount, you might want to think twice about continuing to do business with that customer in order to safeguard yourself against the possibility of not being paid. There is also the option of using “cash on delivery” arrangements.

Any invoices that pertain to sales need to be delivered straightaway. Invoicing at the end of the month will cause a delay in the time it takes for the customer to receive their invoice, which in turn will cause a delay in the time it takes for you to 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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