Understanding your cash flow

Video transcript: Understanding your cash flow

[Audio/ Visual: Upbeat music starts playing with blue introduction screen with white business.govt.nz logo. The word “presents” in smaller, thinner lettering is beneath the logo. These words disappear and are replaced with white text “Tips for tradies e-learning series”. These disappear. White text saying “Understanding your cash flow” then appear in the centre of the screen. Music continues to play throughout the entire video.]

[Visual: The screen changes to a profile shot of the presenter, standing in a tool shed. In the bottom right is the business.govt.nz logo which remains there until the end of the video.]

[Visual: “Cash flow” pops up on the right side of the screen and disappears after a few seconds.]

The term 'cash flow' describes money coming in and out of your business.

In this video, we’ll cover why understanding your cash flow is so important, as well as how to predict your cashflow.

Cash flow management is the process of making sure you have enough money coming in, which can help you avoid financial troubles.

Money coming in can be all earnings from selling services or products, but also includes cash from loans, or selling business shares and assets.

With good cash flow management, you’ll be able to handle unexpected situations that you didn’t financially plan for, like a natural disaster or sudden change in the market.

Let’s look at how to manage your cash flow.

[Visual: the camera cuts to an upper body shot of the presenter on the left side of the screen. A basic illustration of a pile of coins pops up on the right of the screen. Below the coins is an arrow in a circle pointing down. Below the arrow is an illustration of a coin dropping into an open hand. The illustrations disappear from screen after a few seconds.]

A cash flow statement looks at the past month, quarter, or year of your business to see how much cash came in and how it was spent.

[Visual: a basic illustration of a calendar pops up on the right side of the screen for a few seconds.]

To help you track this, set a time in your calendar to record all sources of income and expenses on a regular basis.

You might want to track this in a spreadsheet, a free template online, or your accounting software.

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Now that all your earnings and expenses are recorded, let’s move on to predicting your cash flow.

[Visual: the camera cuts to an upper body shot of the presenter on the left side of the screen. “Cash flow forecast” pops up on the right side of the screen for a few seconds.]

To do this, you’ll need to create a cash flow forecast. This will give you a future view of your business’s earnings, to help you budget.

A good cash flow forecast should show you:

[Visual: “Cash in the bank” pops up on the right side of the screen.]

Your current cash in the bank,

[Visual: “Expected cash” pops up below “Cash in the bank”.]

Expected cash income from sales or loans and assets,

[Visual: “Expected cash flow” pops up below “Expected cash”.]

Expected cash flow - which is a fancy way of showing the highs and dips of your cash reserves over time,

[Visual: “Closing balance” pops up below “Expected cash flow”. After a few seconds, all text disappears.]

And your closing balance.

[Visual: the screen cuts to a full screen image of the Cash flow forecaster tool on business.govt.nz. It has the title “Cash Flow Forecaster”, followed by the words “Forecasting your cash flow helps you understand your business health. Below this are three circles in a horizontal line. The first circle says “Describe your financial position”. The second circle says “Explore your cash flow forecast”. The third circle says “Understand your business health”. Below these circles is a pink “Get started” button.]

The Cash Flow Forecaster tool is a great way to forecast your cash in hand and cash flow for the next year.

[Visual: the screen shows the cash flow forecaster tool in use. Numbers are being entered into each section: “Monthly variable costs = $2,500”, Monthly fixed costs = $5,500”, “Monthly other costs = $85”. The “next” button is clicked and the next screen of the cash flow forecaster tool is shown with numbers being entered into each section: “Cash in hand = $300, Accounts receivable = $900, Materials held = $1,500, Accounts payable = $450, Total Capex = $350”. The next button is clicked the next page of the cash flow forecaster tool is shown “Short-term borrowing”. “$6,000 is entered into the “Cash from borrowing” section.]

You’ll need to enter monthly figures about cash in, cash out, cash reserves and borrowing so have your bank statements handy.

[Visual: the screen cuts to the output graph of the cash flow forecaster tool. This shows a 12 month graph depicting cash in, cash out, cash in hand and cash flow. The Y axis of the graph shows money, and the X axis is the months February – January. The computer mouse hovers over “January” on the graph and a small popup showing the cash flow for January is shown: “Cash in = 17,000”, “Cash out = -14,944”, “Cash in hand = 84,561”, “Cash flow = 2,056”. Below these figures is a link to edit the details of that specific month.]

The tool will provide a graph predicting your cash flow for the next year.

[Visual: the screen cuts to an upper body shot of the presenter on the left side of the screen. A website URL pops up on the right side of the screen for a few seconds: tools.business.govt.nz/cashflow-forecaster”.]

Head to tools.business.govt.nz/cashflow-forecaster to use it.

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If you want to do it manually, you can use a spreadsheet, digital tool, or accounting software.

[Visual: the screen cuts to an upper body shot of the presenter on the left side of the screen. The words “Forecasting period” pop on the right side of the screen and disappear after a few seconds.]

If using a spreadsheet, start by choosing a forecasting period, which is the timeframe you’re wanting to predict to state how much cash you have at the beginning of that period.

[Visual: the words “List and date expected cash income” pops up on the right side of the screen and disappears after a few seconds.]

Next, list and date your expected cash income for the period. This may include sales, invoices paid to you, and things like grants, and tax refunds.

[Visual: the words “List and date outgoing expenses” pops up on the right side of the screen and disappears after a few seconds.]

Then, list and date your outgoing expenses, including less regular things like taxes and repairs.

[Visual: the screen cuts back to a profile shot of the presenter before turning opaque white. The title “Cash flow forecast” shows at the top of the screen. An upwards pointing arrow runs from the bottom of the screen to the top on the left side. The arrow is labelled “Forecast period”. On the right of the arrow are three blue dots, one below the other, and a pink dot at the bottom. The first blue dot says “Starting balance” with a plus sign below it. The second blue dot says “Earnings” with a minus sign below it. The third blue dot says “Outgoings” with an equals sign below it. The pink dot underneath says, “Cash forecast”. There is a cartoon man dressed as a painter on the right of the screen holding a bucket of pink paint.]

Finally, take your starting balance and tally your earnings and outgoings through the forecasted period. This will show how much cash you are forecasted to have.

[Visual: the screen cuts back to a profile shot of the presenter.]

When using accounting software, you should receive the same result, but the software will do the calculations for you after you’ve input your data.

[Visual: the screen cuts to an upper body shot of the presenter on the left side of the screen. “Three estimates” pops up in bold and remains on the right side of the screen”.]

When predicting your income, it’s a good idea to include three estimates. One pessimistic - or gloomy – estimate—

[Visual: a bullet point with “Pessimistic” shows up on screen under the title on the right side of the page and remains on screen.]

--one realistic estimate, which is most likely the number calculated through the steps above—

[Visual: a second bullet point with “Realistic” pops up under the first and remains on screen”.]

and one optimistic - or hopeful - estimate.

[Visual: a third bullet point with “Optimistic” pops up under the second and remains on screen. After a few seconds, all bullet points disappear.]

[Visual: the screen cuts the output graph of the cash flow forecaster tool. This shows a 12-month graph depicting cash in, cash out, cash in hand and cash flow. The Y axis of the graph shows money, and the X axis is the months February – January.]

That way, you’ll be better prepared for changes to the market, and you can show investors that you’re not just planning for the best-case scenario.

[Visual: the screen cuts briefly to a profile shot of the presenter, before cutting to a clip of a man and woman talking to each other in a timber workshop.]

If you’re a new business without much data to go on, it’s a good idea to speak to an accountant. You can also use other statistics to get an idea of how much you’ll earn from sales.

[Visual: the screen cuts to an upper body shot of the presenter on the left side of the screen. The words “tools.business.govt.nz/cashflow-forecaster” pops up on the right side of the screen and disappears after a few seconds.]

Head to tools.business.govt.nz/cashflow-forecaster to get tips on how to predict your cash flow when starting out.

[Visual: the screen cuts to a profile shot of the presenter.]

If you’re feeling overwhelmed, don’t worry, there are plenty of resources online to help at business.govt.nz.

By putting plans and processes in place to make sure you have more cash coming in than going out, you can help grow and maintain your business for years to come.

[Visual: Blue outro screen appears with the business.govt.nz logo in the centre of the screen. This logo disappears and the Ministry of Business, Innovation, and Employment logo appears on the left-hand side and the Te Kāwanatanga o Aotearoa, New Zealand Government logo appears on the right-hand side.]

[Video ends]