What is cash flow?
And why do I need to make my cash flow?? Are we talking about physical cash??
“Cash flow” is just a fancy word for the money in your business.
It can be confusing because often when we talk about “cash” we are referring to physical coins or notes.
So just think of this as “money flow”…. which just doesn’t sounds as good?!
When we say “cash flow” we are talking about the movement of money in and out of your business. It is not the profit of your business.
Money is required to move in and out for 2 main reasons:
Definition: Accounts receivable is an asset account that keeps track of money coming into your business for the goods and services you sell to customers.
Lamen’s term: Money in.
Definition: This is a liability account that tracks the money leaving your business. This may include employee payroll, bank loans, or other business expenses.
Lamen’s term: Money out.
Now, an important thing to understand is that money in minus money out does not equal profit. Why?
In bookkeeping we look at cash flow over time on a weekly or monthly basis.
In one month you could have made $10k in revenue (so money in), but, you may have only been paid $5k of that, and also have had to pay $5k in payroll and expenses. This would mean you have $0 cashflow for that month but still have $5k profit since you only had $5k of expenses. It is just that you were not paid for all of that $10k as yet. The next month, you may see more cashflow, and the same profit amount.
Why is cash flow important to understand?
If you do not get a good grasp on your cash flow, you can quickly find yourself drowning in debt (spending more than you have coming in), or, not knowing when you have enough money in cashflow to reinvest into the business whether it be training, a new facility, or more headcount.
Cashflow is also crucial for the startup phase. Business need cash to start a business unless you are providing a service that you already process (for example a freelance creative). If you are looking to grow your business there will come a time that you need to make investments to see the business flourish, so managing cash flow on the regular is so important.
I get it though. You started your business because you have a passion, and that passion certainly is not managing your books!
Sadly, one of the main reasons for businesses failing is because very few owners spend the required time working on their business and this contributes to businesses failing. You really should be spending 20% of your week working on the business which includes rowing your team, chasing bills and payments, managing your cash flow so you can make the right investments, fostering culture, and forward planning.
If you’re looking to take a load off don’t be afraid to start on one of our low packages to give you a little breathing space so you have more time to do the things you love about running your own business!
GST is the Goods & Services Tax which was introduced to Australia 1999 as a 10% tax surcharge on most goods and services except for things like foods, doctors visits, some childcare services, etc. In 2019 they finally made the sale of menstrual pads and flow cups GST-free! Thank goodness we woke up there!
When it comes to your business, all you need to know is, if your business has or you expect it to have turnover of $75k (excluding GST) for the sale of goods and services (regardless if those sales are GST-exempt items) you MUST charge GST (if applicable) and therefore you need to register for GST.
In your monthly or quarterly BAS (Business Activity Statement) lodgements, you will be declaring to the government how much you have earned as a business, what you have charged in GST, and what you are claiming as input tax credits. The net difference is what you owe the government.
At the end of the financial year you can then claim the tax deductible expenses with your accountant.