How to Create a Cash Flow Forecast in Xero (and Excel)

Why cash flow is a better indicator than profit

cashflow and profit reports in xero and excel
Don’t overestimate how much money you’ll have to spend on a new business venture; better to forecast using cash flow as an indicator.

WE RECENTLY PROVIDED DETAILS of a case study highlighting the experiences of a business owner named Jerry. Jerry decides to start a real estate business on the side, after operating a business already that has synergies, for instance, in terms of clientele. 

We mentioned that Jerry should use his accounting software to determine whether his he’ll have the start-up capital required to fund his new venture for the next 12 months. The best way to do this is to create a cash flow forecast, and we’re going to show you how.

Cash flow is a better indicator of available funds

If you’re wondering why you wouldn’t create a profit forecast, it’s pretty simple. Cash flow represents money in the bank, after you’ve paid all your suppliers and staff and loan repayments and so forth, while profit just shows how much the business earned but doesn’t take into account any cash outlays. 

Profit just shows how much the business earned but doesn’t take into account any cash outlays.

It’s important to understand that it’s not uncommon for businesses to be profitable; however due to cash outlays, these same businesses may not actually have enough money in the bank to fund investment, or in this case, a new venture.

Generating a cash flow report in Xero

Follow these steps in Xero to generate a cash flow report for your business:

  1. Go to Reports, then click All Reports.
  2. Under Financial, select Cash Summary.
  3. Enter the following report settings:
    • Date — The latest finalised month
    • Period — 1 month
    • Compare With —  Previous 11 Periods
    • Select the Include GST and Show YTD filters
  4. Click Update to generate the report in Xero
  5. At the bottom of the report, click Export and select Excel to download the report in Microsoft Excel format.

Set up formulas to forecast 12 months ahead

In Excel, you’ll need to create formulas that will show you the average cashflow of your business across the previous 12 month period, so you can then forecast ahead for the next 12 months.

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Creating and working with formulas is something we teach you in our Microsoft Excel training courses. We also feature a suite of highly popular Xero online training courses, or if you want more information on creating profit and loss statements in Xero, read here.

If you don’t use Xero and you’re using MYOB or QuickBooks, our MYOB and QuickBooks training courses will also show you how to run cashflow reports, among many others.


Online bookkeeping accounting training courses for CPD points

EzyLearn Excel, MYOB and Xero online training courses count towards Continuing Professional Development (CPD) for bookkeepers and accountants. We’ve been an accredited training provider of the Institute of Certified Bookkeepers ever since the organisation started in Australia. Find out how CPD points can be of benefit to you.


 

Thinking of Starting a Second Business? Introducing Jerry

Case Study: Costs for starting up a second, related business

microsoft excel starting a second business
Contemplating starting a second business, related in some way to your first? Excel can help you forecast start up costs.

A LOT OF BUSINESS OWNERS branch out into related fields when their flagship business becomes successful enough (just look at Jim’s Mowing). However, this can be a bit dicey if the business owner doesn’t properly forecast all the start up costs. Not doing so can not only have an adverse impact on the new venture, but also on the existing business.

In this case study, we’re going to look at the start up costs associated with starting a real estate sales business.

Meet Jerry, our budding entrepreneur

Jerry is a male in his 40’s, currently working as an agent for a local asbestos removal company, earning a commission for helping the company make sales. In this role, he works as an independent contractor, invoicing the asbestos removal company at the end of the month. Because of the work he does, Jerry meets with lots of homeowners (and business owners too) who are renovating their home in preparation to put it on the market for sale or rent out.

Because of the client contact base Jerry is always developing, and knowing that there is no conflict of interest, Jerry decides he’d like to branch and become a real estate salesperson.

Budgeting for a new business from home

Jerry decides to operate his real estate sales business from home, as he plans to operate it as a side business, at least initially. Jerry won’t need to lease office space, but there are the following costs he will need to budget for. The costs he foresees are approximate:

  • Real estate license training course: $2,250
  • Website setup costs: $300 + training (if required)
  • G Suite account: $5/month upwards + training (if required)
  • Mobile phone: $55/month upwards
  • Business cards, flyers, other marketing materials: $99 upwards

Jerry’s ad-hoc operational costs

Although the majority of Jerry’s operational expenses will be reimbursed by the vendor once the property is sold — property marketing, auctioneer costs, etc. — Jerry will need to ensure he has enough capital to cover these operational costs. Property marketing costs are determined based on a percentage of the property’s value, usually 1 percent but sometimes lower. The median price of property in Jerry’s area is $440,000.

Because Jerry is already working as an independent contractor, he doesn’t have to incur any other operational costs (office furniture, internet, information technology, etc.), however his bookkeeper may apportion these costs differently now that Jerry is operating an additional business.

Determining upfront capital required

Jerry already has two homeowners who are thinking of selling their home in the next 12 months. He estimates that based on the value of each property, he will need to spend $5,000 each on property marketing. Therefore, he’ll need at least $13,370 in startup capital to fund his new venture for the next 12 months — although he knows that the initial $20,000 in property marketing will be reimbursed to the business within 6 months.

How Jerry will measure his success

Jerry is located in Newcastle in the Hunter region of New South Wales. Clearance rates in this region hover around 70 percent and properties spend an average of 50 to 70 days on the market, as property is typically sold by private treaty rather than auction. These two metrics will be used to determine Jerry’s success. Price is not a good indicator, as the nature of property sales means Jerry should be valuing property accurately with only a 10 to 15 percent difference in the final sale price.

Jerry should also research other real estate agents selling similar property in his local area to determine how many sales they are writing each calendar year. This can become another benchmark for Jerry’s success, although only a peripheral one, as Jerry is still only operating his real estate business on the side.

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You can use Excel to work out a budget for the start up costs for your second business, and use accounting software like Xero, MYOB or QuickBooks to forecast whether your existing business will have the capital to fund your new venture.

Our Excel training courses will teach you how to create budgets and forecasts and our cloud accounting training courses will show you how to determine the financial health of your business.


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Successfully promoting your business products and services to clients these days requires a sound knowledge of how to spread the word via social media. Whatever your field, we can teach you the online marketing techniques to stand out from the crowd and build your customer base! Check out what’s included in our comprehensive Social Media and Digital Marketing online training courses.


 

We Give You 3 FREE Ways to Schedule Staff Rosters

Scheduling for Rostered Staff Can Be Easy — and Free

staff roster sheets for free
If you have rostered staff members or shift workers in your business, check out our three suggestions for creating free roster sheets.

SHIFT WORK TYPICALLY EXISTS in businesses that operate outside of regular business hours — on weekends, the wee hours of the morning, late at night — and to be fair to all of the business’ employees, the shifts are rotated. Other times, as in the case of home care nurses, it’s because the employee has to visit a different patient each day of the week.

As such, it’s necessary for these businesses the provide staff members with a roster each week, fortnight or month. Although there are lots of roster programs available, we’re going to look at 3 great ways you can create staff rosters for free.

1. Use Microsoft Excel

One of the exercises in our Microsoft Excel training courses is to create your own staff roster, because once you understand how to change the margins and set up a worksheet correctly, Excel is still one of the most common programs to create a roster in. Most businesses ensure a new roster is available at the premises on the same day each week, fortnight or month, with at least a week’s notice so each employee has time to check their shifts when they’re at work. Other times, they’re printed and emailed to staff, again with at least a week’s notice.

2. Google Sheets

Once you’ve had Microsoft Excel training, you’ll find little difference between Excel and Google Sheets, as the former was so efficient that not even Google could find a way to improve its offering (ditto for Google Docs). Once your roster has been created in Google Sheets you can likewise print it out, email it or, if your staff have Google accounts, share it with them.

3. Google Calendar

This only works if your staff are all using the same domain — i.e., they have a company email address — but if you open up Google calendar, you can start scheduling events as shifts. This may be suitable for call centres or businesses whose employees work in their office, both of which only have a handful of employees and a few shifts to cover. Scheduling lots of staff members across lots of different shifts this way can be tedious.

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Our Microsoft Excel training courses will show you how to modify margins and set up templates, skills you can use to create your own free staff roster in Excel — or Google Docs, if you prefer. Visit our website for more information.


Xero online training course

At EzyLearn we offer online training courses to help you up-skill and find employment.

Choose from our range of cloud-based online accounting software courses, to business start up and management courses, to marketing and sales courses, or update and further your skills in a range of Microsoft Office programs (ExcelPowerPointWord) or social media and WordPress web design). 


 

Should You Take Out a Loan to Avoid Delaying Payroll Payments?

Repayments on a business loan may be less than super and PAYG combined

Small business loan to finance PAYG and super
It’s not uncommon for small businesses to take out a business loan to meet their super and PAYG obligations – but this should never be a knee-jerk reaction to lean times.

IN A PREVIOUS POST we talked about taking out a business loan to cover payroll if you anticipate that you won’t have enough funds to do so otherwise.

Naturally, it’s always better to use your business’ own funds to meet your obligations, whether it’s paying staff or suppliers. This said, getting a business loan to cover payroll can be a good idea for small and growing businesses in certain circumstances. We look at these now.

Loan repayments are usually small

Depending on how many employees work for you, the repayments on a business loan are typically smaller than all of your payroll obligations — this includes superannuation and PAYG — combined. If you get a loan to fund 12 months of your business, payable over a 24 or 26 month period, the repayments will be far easier to manage each month.

Interest is usually a tax deduction

Businesses are able to claim the interest from any business loan as a tax deduction, so even if the annual percentage rate (APR) adds a few additional thousands of dollars to your capital amount over the period it takes to pay the loan back, the interest will still go towards reducing your taxable income.

This is a more favourable option to delaying payment to your employees (illegal) and delaying payment of PAYG and superannuation withholdings, which could incur a Failure To Lodge (FTL) penalty, plus a general interest charge (GIC). Note: Fines and penalties cannot be claimed as a tax deduction and are therefore dead money.

Do your sums first

taking out a small business loanDon’t forget that, while a business loan to cover payroll for 12 months will be easy to repay initially, your business’s profits will need to improve substantially over the next year so that you can continue to meet your loan repayments AND your payroll obligations for that year.

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You can easily work this out using Microsoft Excel. Our Intermediate Microsoft Excel training courses show you how to determine if you can afford to take out a mortgage, but because all of our fields remain “unlocked”, you can easily modify them to suit a business loan scenario. Visit our website for more information on all of our Excel training courses.


 

learn excel online training course
Our online training courses feature real-life case studies to make our learning more relevant and true to life.

Wishing all our Valued Students a Safe and Restful Easter

Happy Easter2017

Wishing all our EzyLearn students — past and present — a safe and restful Easter break and thank you for choosing EzyLearn for your online studies.

Turn Your Wage Payments into a Business Loan

Only Managing Payroll on an Ad Hoc Basis? We Show You How

managing ad hoc payroll
If you know that you can’t quite make payroll, a short-term business loan may see you through and avoid penalties.

WE’VE RECENTLY UPDATED THE course content in our Intermediate Microsoft Excel training courses to include a workbook and spreadsheet (that you can use in your own business) showing you how to manage ad hoc payroll using Microsoft Excel. This will enable you to calculate your PAYG and superannuation obligations in Excel.

Using Excel to work out your PAYG and super obligations is a great way for small businesses, with a small number of employees, to save money. It saves you having to purchase this extra module in MYOB or Xero, for instance, when you may rarely use it. Saving money for small business is crucial as often it’s these same small businesses that have trouble making payroll payments each week, fortnight or month — and then wind up incurring further fees from the ATO when they’re late with their reporting and payments. It’s a vicious cycle.

When you can’t make payroll

If you’re finding it a stretch to make payroll payments, don’t worry, you’re not alone. Lots of business owners have trouble making payroll. But there are things you can do about it. We find that it frequently comes down to poor credit management processes or perhaps a downward trend in a business’ cycle that’s been missed due to poor or inefficient accounting processes. All of these can be rectified.

If the reason your business can’t make payroll is due to one or more shortcomings in your business’ operations, remedy the problems now. Similarly, if credit management is the issue, and late-paying clients are partially to blame, then tighten up or implement a credit management process. If it’s the result of bookkeeping that’s not up-to-date, find a bookkeeper to manage this for you.

How you can make payroll when cash is tight

Get financing. There are lots of ways to do this, but a common method, particularly if you need access to funds quickly, is to get a short-term business loan. Many short-term business loans don’t require businesses to have a great credit score, and will offer funding of as little as $5,000 right up to $500,000.

You’d have between 3 and 36 months to pay back the loan, but you need to be aware — the annual percentage rates (APR) are usually high. Most lenders require the business to have been active for a minimum of 9 months, and have revenue of more than $75,000 per annum. However, if paid off quickly, these can be an alternative to incurring penalties — it will obviously depend on your business’ individual circumstances.

Keep on top of bookkeeping

If you stay on top of your bookkeeping, you’ll either reduce the likelihood that you won’t make payroll, or as a worst case scenario, be able to foresee the periods when you won’t be able to, and be able to arrange finance in time to cover it.

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Use the Ad Hoc Payroll Guide included in our Intermediate Microsoft Excel training courses to determine the rate of PAYG tax to withhold — and the required super contribution amounts in Excel. Visit our website for more information on our entire suite of Excel training courses.


Xero online training course

At EzyLearn we offer online training courses to help you up-skill and find employment. Choose from our range of cloud-based online accounting software courses, to business start up and management courses, to marketing and sales courses, or update and further your skills in a range of Microsoft Office programs (ExcelPowerPointWord) or social media and WordPress web design). 

All of our online training courses can also be counted towards Continuing Professional Development points.