073 | Cash Flow for Sole Proprietors
We would like to take a moment and shine a light on Cash Flow for entrepreneurs and small businesses operating as a sole proprietorship.
One thing we hear often are the words "Cash Flow" used synonymously with the word "Budget". Although they are both effective planning tools for your business, they serve different purposes.
So, let's get a definition of Cash Flow. What is it? According to Dictionary.com, it is: "the sum of the after-tax profit of a business plus depreciation and other noncash charges: used as an indication of internal funds available for stock dividends, purchase of buildings and equipment, etc." I know ... you're thinking whaaatttt??? This definition may not resonate with a lot of you. It may be more that cash flow is seen as money in and money out.
If we now take cash flow in it's simplest terms and start with managing *money in, the easiest way to do this is with a cloud accounting app like #Quickbooks. You can create invoices and run reports to monitor what is expected to come into your business, but that doesn't help you with cash flow does it? That tells you what's expected but not what you actually have to pay expenses/employees/buy assets, etc.
If we take cash flow and look at *money out, you could apply the same method and record all expenses for cash going out which does provide an overview of what you owe.
The only way to determine your true cash flow is with a Cash Flow Statement. This statement tells you what cheques you have cut but have not cleared the bank, what you owe to the bank/leases/vehicles and other loans required to pay and what money is confirmed coming in on #Receivables.
To begin yourself, a cloud accounting app to record all your money in and money out is what we would suggest. Quickbooks does have a module that creates a very basic cash flow statement which may have acquaint you with its components and how it may help.
We also offer a complimentary cash flow forecast for new clients and would be happy to crunch some numbers for you! You can visit our webpage and we will contact you to get started: www.bigrose.ca/cashflowforecast