Planning and managing your initial cash flow is important for ensuring you can get the most out of your business. Mapping out estimated expenses and revenue allows you to prepare for how much investment the business needs before it reaches that critical point of becoming cash flow positive and generating income.

From there you can plan for how much you want to be pulling out of the business on a monthly, quarterly or annual basis and what your sales need to look like to hit those targets.  For the full breakdown you can watch the video or read the transcript below:

transcript from Roland’s cash flow advice

For me, the key to success when starting a new business is making sure you plan and manage your initial cash flow.  It’s important to map out what your first few months of expenses might look like so that you know how much money you need to be tipping in before the business starts to generate some income and become self-sufficient. Types of expenses you need to be planning for include:

  • Business structure set up costs [setting up your company, setting up a trust]
  • Licencing costs
  • Insurance [public liability, professional indemnity and workcover]
  • Subscriptions costs [if using account software like Xero]
  • Phone, internet + rent of office premises

We find mapping out these expenses and just jotting them down is a great lead in to preparing your initial business budget. When preparing your budget, it’s a great opportunity to set some targets for yourself around how much you would like to be pulling out of the business and working out what top-line revenue you need to generate to do so.

For us, we like to reverse engineer the budget to work out what that top-line revenue figure needs to be. For this calculation, we take your overhead expenses [they’re your fixed expenses month to month] and then we work out what your estimated gross profit percentage is. We then punch that into a formula to give us what that top-line turnover number needs to be.

Using that calculation, we also like to work out what your break-even point is with that top line turnover and then we target how much you want to be pulling out of the business each month, quarterly, or annually.  From there we can work out how many sales you need to generate to hit those targets.

If you’d like to find out further information about cash flow in your business, please don’t hesitate to reach out to myself or the businessDEPOT team at 1300 BDEPOT.