Guide on setting up your cash flow spreadsheet
Setting up your first cash flow spreadsheet might seem daunting, but by breaking it down into manageable steps, you can create a powerful tool for understanding and managing your business finances. Here's a comprehensive guide to what you need to do:
1. Choose Your Tool:
Spreadsheet Software: The most common options are:
Microsoft Excel: Powerful and widely used, but requires a subscription or one-time purchase.
Google Sheets: Free, web-based, and offers excellent collaboration features.
Other Options: LibreOffice Calc, Apple Numbers.
Keep it Simple Initially: For your first spreadsheet, focus on functionality over complex formulas and formatting. You can always enhance it later.
2. Define Your Time Period:
Decide on the Frequency: Will you track cash flow weekly, bi-weekly, or monthly? Monthly is a good starting point for many businesses.
Set Your Initial Range: Decide how far into the future you want to forecast. A 3-6 month forecast is a common starting point. You can always extend it later.
3. Structure Your Spreadsheet:
Create Clear Sections: Divide your spreadsheet into logical sections to make it easy to read and understand. Common sections include:
Header: Business name, reporting period (e.g., Month of April 2025).
Cash Inflows (Receipts): All the money coming into your business.
Cash Outflows (Disbursements/Payments): All the money leaving your business.
Net Cash Flow: The difference between total inflows and total outflows.
Opening Balance: The amount of cash you have at the beginning of the period.
Closing Balance: The amount of cash you have at the end of the period (which becomes the opening balance for the next period).
Use Separate Rows for Each Item: List each individual source of income and expense on its own row. This makes it easier to track specific items and identify trends.
Consider Columns for Time Periods: If you're forecasting over multiple months, have a separate column for each month (or week, if you've chosen that frequency).
4. Identify Your Cash Inflows:
Think about all the ways money comes into your business. Be as specific as possible. Examples include:
Sales Revenue:
Cash sales
Credit card sales (consider the delay in receiving funds)
Online sales
Payments from Customers:
Receipt of invoices
Loans Received:
Investment Income:
Sale of Assets:
Grants or Subsidies:
Interest Income:
5. Identify Your Cash Outflows:
Think about all the ways money leaves your business. Again, be specific. Examples include:
Operating Expenses:
Rent
Utilities (electricity, water, internet)
Salaries and wages
Payroll taxes
Marketing and advertising
Office supplies
Insurance
Legal and accounting fees
Software subscriptions
Travel expenses
Cost of Goods Sold (COGS):
Raw materials
Direct labor
Inventory purchases
Loan Repayments:
Principal payments
Interest payments
Capital Expenditures:
Purchase of equipment
Purchase of vehicles
Taxes:
Income tax payments
Sales tax remittances
Owner's Draw/Dividends:
6. Input Your Starting Balances:
Opening Cash Balance: At the beginning of your chosen time period, what is the total amount of cash you have in your bank accounts and any readily available cash equivalents? Enter this as your opening balance for the first period.
7. Enter Your Estimated Inflows and Outflows:
Use Realistic Estimates: Base your projections on historical data, sales forecasts, contracts, and known expenses. Be conservative with your inflow estimates and perhaps slightly more generous with your outflow estimates.
Be Consistent: Apply your estimates consistently across the time periods you've chosen.
Document Your Assumptions: Make notes about how you arrived at your estimates. This will help you understand and adjust your forecast later.
8. Set Up Basic Formulas:
Total Inflows: In each time period column, create a formula to sum all the inflow items.
Total Outflows: Similarly, create a formula to sum all the outflow items.
Net Cash Flow: In each time period column, subtract the total outflows from the total inflows (Total Inflows - Total Outflows).
Closing Balance: In each time period column, add the net cash flow to the opening balance for that period (Opening Balance + Net Cash Flow).
Carry Over Opening Balance: For each subsequent time period, the opening balance will be the closing balance from the previous period. You can create a simple formula to link these cells.
9. Format Your Spreadsheet for Clarity:
Use Clear Labels: Make sure all rows and columns are clearly labeled.
Use Consistent Formatting: Apply consistent formatting for currency, dates, and numbers.
Use Borders and Colors: Use borders to separate sections and consider using different colors to highlight inflows (e.g., green) and outflows (e.g., red).
Freeze Panes: If you have a lot of rows or columns, freeze the top row (headers) and the first column (item descriptions) so they remain visible as you scroll.
10. Save Your Spreadsheet:
Give it a Descriptive Name: Something like "Cash Flow Forecast - [Your Business Name] - [Date]".
Save Regularly: Save your work frequently to avoid losing data.
11. Review and Update Regularly:
Track Actual vs. Forecasted: Once you have actual cash flow data, compare it to your forecast. This will help you identify areas where your estimates were inaccurate and improve your future forecasting.
Update Your Forecast: Regularly update your cash flow forecast with new information, changing market conditions, and actual results. This is a living document that should be reviewed and adjusted frequently (at least monthly).
Key Takeaways for Your First Spreadsheet:
Keep it simple to start. Don't get bogged down in overly complex formulas.
Focus on accuracy in identifying inflows and outflows.
Be realistic with your estimates.
Regularly review and update your spreadsheet.
By following these steps, you'll be well on your way to creating a valuable cash flow spreadsheet that will empower you to make informed financial decisions for your business. Good luck!