Axia Accounts Bookkeeping

Bookkeeping and tax services

How to do a cash flow forecast

Poor cash flow is one of the biggest contributors to small business failure. To beat the odds and succeed in business, it pays to conduct regular cash flow forecasts. Here’s what it should include. 

  1. What is your anticipated income?

This figure is an estimate of what you expect to bring in from sales. 

Make sure you: 

  1. Use sales data from a comparable period (e.g. use June 2019 figures for June 2020 forecast) as a guide
  2. Take into account seasonality or one-off events (e.g. conventions)
  3. Factor in current market issues (e.g. a recession or a pandemic)
  4. Monitor your competition. If a new competitor is taking some of your regular clientele, you may need to factor in lost market share

 2. What are your other cash inflows?

Depending on your business, sales won’t be the only contributor to company profits.

Cash inflows can include: 

  1. Government grants 
  2. Proceeds from insurance 
  3. Tax refunds
  4. GST rebates
  5. Funds from asset divestment 

3. When will you receive payments?

This will differ from industry to industry – a retail business will have vastly different payment terms from an IT company. If you have 30-day terms, you may expect to receive payments one month after invoicing or later.

4. What are your expenses? 

Both direct and indirect expenses should be factored into this figure. Make sure you also take into account the timing of each payment, as you probably won’t pay all outgoings on the same day.

Expenses may include: 

  1. Employee wages and super
  2. Payments to suppliers
  3. New assets
  4. Overhead (ie. rent, utilities, office supplies
  5. Insurance
  6. Repairs and Maintenance
  7. Franchise fees 

5. WHAT IF…?

Most businesses are in a constant state of flux. Even if your cash flow remains steady for several months, an unexpected event can affect your best-laid plans. So include ‘what-if’ scenarios in your forecasting.

What if scenarios may include: 

  1. Loss of key staff
  2. Rent increase
  3. Recession
  4. Damage to your physical business (ie. flood, fire, etc) 
  5. Damage to your brand (e.g. poor reviews)
  6. Sudden shutdown of brick-and-mortar businesses (e.g. COVID-19)

With Axia, not only will you have a professional bookkeeper look after your accounts, you will receive regular, simple-to-understand business reports giving you a better insight into how well your business is performing.

In addition, all clients have access to our cash-flow strategies to make their business more profitable. 

Contact us now. 

Cash flow and Profit – What is the difference?

Cash flow and profit are two different things. If you own a business, it is crucial to have a deep understanding and a solid grasp of both.

In this article, we will explain the difference between the two and the significance of each.

Cash flow explained

In a nutshell, cash flow is the total amount of money transferred in and out of business, especially as affecting liquidity. At times, it does seem it only goes one way but on business,

it does flow both ways.

1. Cash is coming in from customers or clients who are buying your products or services.

2. Cash is going out of your business in the form of payments for expenses like rent or a mortgage.

What is profit

Profit is the amount of money that remains from your sales revenue after costs have been deducted. There are two types of profit:

Gross profit and Net profit

So, are they the same?  No, there is a complete difference between the two. Cash flow is the money that flows in and out of your business while profit is whatever remains from your revenue after costs are deducted.

Ultimately, cash flow and net profit measure different things. While profit is the goal – and an indicator of financial health – cash flow is the lifeblood of an organization, keeping operations ticking over on a day-to-day basis. For a growing business, both cash flow and net profit are viable, but in the short-term, cash flow is probably the number one concern.

In Axia Accounts and Bookkeeping, all our clients have access to our cash flow strategies to make their business profitable. Not only you will have a professional bookkeeper to look after your accounts, but you will also receive business reports giving you a better insight into how well your business should be performing. 

Contact us here to enquire. 

Federal Budget 2020/21 at a glance

The government has released the 2020/21 federal budget that will help soften the blow of the global pandemic and focused on boosting the economy. The program tackles different tax-related measures for businesses – aimed at slashing taxes and putting Australians who lost their jobs back into work. Those who stand to gain and benefit from it are likely those who have lost the most during the COVID 19 pandemic (small businesses, part-time workers, and young people).

ON TAXATION:

The budget brings forward tax cuts for lower and middle-income earners which will be backdated to July 2020. The Government will also retain the low and middle-income tax offset for an additional year providing further relief.

ON BUSINESS SUPPORT:

The 2020/21 federal budget includes a range of measures designed to encourage established businesses to spend on plant and equipment, invest in research and development, and also hire or retain workers.

The Instant Asset Write Off for businesses will be extended to businesses with a turnover of up to $A5 billion and will be further extended until June 2022.

There is also a relief for businesses that have been “doing it tough” during the pandemic, with a measure which will enable them to use their losses earlier.

To encourage businesses to hire younger Australians, the government has announced a new program called Job Maker, which will contribute $A200 per week, payable for one year, towards the hiring of people aged 16-35 who are currently on Jobseeker.

The payment for those aged 30-35 is $A100 per week.

The government estimates that the combination of the immediate expensing of capital expenditure and loss carry-back measures will create an additional 50,000 jobs nationally.

ON INFRASTRUCTURE:

$14 billion invested in new and accelerated projects over the next four years. Providing 40,000 jobs during their construction.

INSTANT ASSET WRITE-OFF:

Businesses with turnover up to $5 billion will be able to instantly write-off eligible asset purchases. The deadline for purchases is 30 June 2022.

ON HEALTH MEASURES:

$16 billion FOR covid19 health measures, includes doubling the amount of government-subsidized mental health services.

ON ENVIRONMENT:

$47.4 million invested in ocean protection and restoring marine health. Additional 29 .1 million into the reduction of chemical contamination risk on commonwealth land.

 

(source: CPA Australia on Federal Budget 2020/21 overview)

Doing your own Bookkeeping (or not)

If you’re a small business owner or a sole trader, the idea of doing your own bookkeeping to save money might be a great idea. But doing your company’s financials is not something to take lightly, you may do this well in the beginning and think you’re saving money but in the long run, it might cost you a fortune and your time.

On average, a startup business owner can spend many hours in a week updating records and making computations. Could be more if it is tax season and end of the year reports. This is okay but can do more harm than good to your money and time management. Doing your books are taking away valuable time for growing your business. Hiring a professional bookkeeper to take care of the company’s financial records and manage your day to day finances is something you should ponder on.

Bookkeeping is also something an expert in financials and accounting should be doing. Bookkeepers are experts in monitoring cash flow from different accounts, bills, and invoices. They are skilled in organizing your books for better money management. Though bookkeeping can be done by non-professionals, this task should be done and can be best handled by a trained individual. This will also avoid errors in your end that can cost problems in the future.

Hiring a bookkeeper can give you more time to focus on what’s important– YOUR BUSINESS.  You don’t have to spend countless hours organizing your books. You can keep your focus on your business and health being.

Lastly, a good bookkeeper will help your business through all stages of starting and growing.  They can give you a perspective on how you can make your budget well and run your business more efficiently. They can teach you ways on how you can cut costs and different strategies on cash flow. As they are an extension of your business and the keeper of your records, it pays to hire the right one.

Axia Accounts offers Bookkeeping, Taxation, and Accounting, Australia wide.  We are more than just a traditional bookkeeping service. Our experienced Bookkeepers will give you a comprehensive, simple to understand business reports giving you a better insight into how well your business is performing.

For more information, call us today at 1300 497 790. 

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