5 steps to create a quick cashflow forecast in Quickbooks Online

This week I have been helping a client prepare a 90 day cashflow forecast in Quickbooks online as they wanted to have a cashflow which they could review and monitor their cash position quickly with their bookkeeper. So I thought it would give a good opportunity to show you 5 of the steps we went through and how you can use this feature to create your own 90 cashflow in Quickbooks Online.

So, why are cash flow statements so important to your business?

For a business to be successful, it must have sufficient cash at all times and your cash flow statement is important to your business because it informs you of your business cash position. Business needs cash to pay its expenses, to pay staff, bank loans, to pay taxes and to purchase new assets to grow.

To keep your company in good financial health you need to keep a handle on your cashflow and if you use Quickbooks Online a new feature has made this a little easier.

1 - How to get started preparing your Quickbooks Cash Flow Forecast

The first step on how to create a cashflow for the next 90 days is to understand where you have been making and spending money, so to use the cashflow forecast tool in Quickbooks Online is you need to make sure your bookkeeping up to date within Quickbooks.

Once you have reconciled all your bank accounts, loans or credit cards, you should have a better understanding of your current cash position. The next step is to understand where you want to be and flag any issues you may foresee in the next 90 days.

So, log into Quickbooks and on your dashboard you will see on the left hand side a button calls "Cash Flow", if you have not got this button you may need to check which Quickbooks version you have or talk to your advisor.

The first thing to remember when looking through your Quickbooks cash flow forecast is that this is a safe place to play around with your numbers and it will not affect any other area of Quickbooks.

Within the cash flow section, there are 2 graphs you can choose from "Money In/Out" which is a bar chart of the money which you have received vs. the money you have paid out. Hopefully, the Money In should be higher than the money out. The second graph is a line graph showing the actual cash balance over the past 9 months and then a projected forecast. Quickbooks will project your cash forecast based on your sales invoices and bills already inputted into Quickbooks plus any predictions based on your previous spending.

2 - How much money are you really making in your business?

Below the graph in Quickbooks Online Cash Flow you will see three tabs, "All", "Money In" and "Money out" The first area we are going to look at is "Money In".

Below the date and description you will see a line called "In the past", by clicking on this you will see all the invoices which have been paid, check this is what you were expecting. If you believe you should have been paid more or a receipt is missing, check your "Accounts receivable" report in Quickbooks and your bank account to make sure the invoice has been allocated correctly.

The next area is the receipts Quickbooks believes are "coming up", this will be based on invoices which have been sent to clients but not yet paid and will give a predicted date based on your invoice due date plus any recurring receipts based on patterns within your bank history.

At the end of the line, you will see a little arrow pointing to the right, click on this and it will bring up boxes to edit. You can edit the date and the amount of the invoice and if you need to, there is a link to see the invoice. This is useful if you have agreed a different date to the invoice due date for when your client is going to pay you or if you have agreed to take payment in instalments.

If you have a new job coming up which you have yet to invoice, for this example, I will use "Mr Smith" who would like a new bathroom and you estimate this job to bring in £5,000 and you will take a deposit of £1,000 on the 20th and the balance of £4,000 would be settled when the job completed on the 30th.

So, click on "Add Transaction" and add £1,000 to be paid on the 20th

Merchant name would be "Mr Smith - Bathroom job"

Amount £1,000

Save

You would then repeat this for the £4,000 balance which would be due on the 30th.

The affect this would have on the graphs above is your "money in" would increase and your cash available would be higher.

You can add as many receipts as you need and amend or delete as required. Don't worry, no matter what you do here, it will not affect the rest of your Quickbooks Online account.

3- What are Fixed Costs and how can I forecast for them?

You have now looked through your sales and sorted when you are going to get paid. The next step is to see where your money goes. The first area to review are your fixed costs, or expenses in your business which do not vary much from month to month. Examples of fixed costs are:

Rent

Bills

Software

Telephone

Bank fees

Loan repayments etc

Now we need to move to the next tab in Quickbooks Cash Flow called "Money Out", as with "Money In" a good place to start is to look at where you spend your money each month so check out "In the past" . If there are expenses which you were expecting to see going out each month and are not there, check your "Accounts payable" report in Quickbooks and your bank statement.

Under the "Coming up" section, you will see Quickbooks has two expenses categories, "bill" and "predicted". "Bills" are payable invoices already inputted into Quickbooks and the date these are due to be paid are based on the invoice due date inputted when the invoice was added to the system. The second is "predicted", these are the costs Quickbooks assumes you may need to pay based on what you have paid in the past.

The next step is to review the bills you need to pay and check through the dates they will need to be paid I would suggest having agreed dates in the month you will settle any bills due.

Then review the predicted expenses and add or amend amounts or dates or remove them completely.

More than likely, with fixed costs, you will see the same amount each month, so you would review these costs to make sure they were. I like reviewing these costs first as it offers a good check to see if there are expenses you would normally pay out but you have not received the invoice yet, you can chase your supplier.

4 - Which costs are Variable Costs and how can I add them to my cash flow?

The next area to look at is often more difficult and will often depend on quotes and estimations you have given to potential clients. How I tackle this area is to look at a potential job, for this example I will continue to use the "Mr Smith" example above who would like a new bathroom. You estimate this job to cost £1,500 in materials and you will hire a subcontractor for £500.

So, you will need to add material costs of £1,500 to your cash flow and to be paid on the date your trade account would normally be settled and then the subcontractor cost of £500 when you would normally pay your contractors and plan for any Construction Industry Scheme payments to HMRC by the 19th of the following month.

You can repeat this for any jobs you have agreed and make sure the timing of your payments and receipts do not leave you short of cash.

5 - Which other items should I consider for planning my Cash flow Statement?

Other items to consider when looking at your cashflow will be some of the hypothetical questions you may need to look into for different scenarios or assumptions. The most common questions are, can I afford a new van? or, Can I take on a new staff member? or Can I afford to take an additional dividend?

You can add any new transactions in the "Money In" or "Money Out" section of your cashflow and click on"Add Transactions" but you need to make sure you add the correct receipt or payment in the correct area, so examples of these are below:

Money In

Loan

Investment

Ad-hoc receipt

Director Loan repayments

Money Out:

Purchase of new machinery

Dividend Payments

Loan Repayments

Credit Card repayments

VAT payments

Tax payments

Conclusion

Quickbooks Online created this feature last year and still remains in Beta phase however, do not be put off by this. The most useful feature is how the software can show where you have spent money in your business and then gives you the opportunity to review where you may need to spend more money or if you can afford to make that all important purchase. The function is easy to use and does not affect your bookkeeping so you can have a play around and see how this affects your future cash balance.

Cash is king and managing money can feel like a strategy game you need to play and a constant juggling act. A cashflow can be as difficult or as complicated as required by a business but no matter on the size of your business, you need to manage it before it begins to cause problems. If you need help on how to create your Quickbooks Online 90 cashflow or if you need one for longer, drop me an email or arrange a call on: https://activeledgers.as.me/free15

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