Cert IV - M. S. Martin May 2012

Apply Legal Requirements & Manage Small Business Finances

Lesson 14

Cert IV - M. S. Martin May 2012

Todays Lesson

Cash FlowProfit & Loss Statements

Cert IV - M. S. Martin May 2012

Cash Flow

• What is it?• Cash flow is the movement of money into or

out of a business, project, or financial product. It is usually measured during a specified period of time.

Cert IV - M. S. Martin May 2012

Cash Flow Projections

• Some say…• Cash Flow Projections. Cash flow projections

are the key to making wise and profitable business decisions.

Cert IV - M. S. Martin May 2012

What You’ve done already• In exercise 4 below, you have looked at the cash position of your

business already• What we want to do now, is just look at cash flow as an item itself,

cash in, cash out etc…. And look at forecasting that.

Cert IV - M. S. Martin May 2012

Sample Cash Flow Forecast

Jan Feb Mar Apr May JunOPENING Bank Balance $5,000.00 $3,000.00 -$9,000.00 -$4,000.00 -$10,000.00 $0.00

Progress Payments $10,000.00 $12,000.00 $16,000.00 $14,000.00 $14,000.00 $10,000.00Other Income $1,000.00 $2,000.00 $1,000.00 $0.00 $2,000.00 $2,000.00

TOTAL CASH IN $11,000.00 $14,000.00 $17,000.00 $14,000.00 $16,000.00 $12,000.00

Expenses $12,000.00 $26,000.00 $8,000.00 $5,000.00 $6,000.00 $8,000.00Other Outflows $1,000.00 $0.00 $4,000.00 $15,000.00 $0.00 $5,000.00

TOTAL CASH OUT $13,000.00 $26,000.00 $12,000.00 $20,000.00 $6,000.00 $13,000.00

NET CASH FLOW -$2,000.00 -$12,000.00 $5,000.00 -$6,000.00 $10,000.00 -$1,000.00

CLOSING Bank Balance $3,000.00 -$9,000.00 -$4,000.00 -$10,000.00 $0.00 -$1,000.00

Cert IV - M. S. Martin May 2012

Remember the ATO example

Cert IV - M. S. Martin May 2012

How can we use it ?

• As a prediction tool, for….?• Future purchases• Future employment• Overdraft requirements• What else did you have?

Cert IV - M. S. Martin May 2012

Other Forecasts

• There are two main types we would use in a building business are a “Cash Flow Statement” and a “Profit and Loss Statement”

• A “Profit and Loss Statement” this establishes if the business is in debt or is liquid at any given time– You would typically have to produce one of these

when applying for finance from a bank for example

Cert IV - M. S. Martin May 2012

Another Definition & Terms

• Income statement, also referred to as profit and loss statement (P&L), statement of financial performance, earnings statement, operating statement or statement of operations

• Did your business make any money? You can find the answer in your income statement, the financial report that summarizes all the sales activities, costs of producing or buying the products or services sold, and expenses incurred in order to run the business. (Ref: Bookkeeping for Dummies, Lita Epstein)

• The following examples are from the reference source above Lita Epstein

Cert IV - M. S. Martin May 2012

Sample income statement (profit & loss) – single step format

RevenuesNet Sales $1,000Interest Income $100Total Revenue $1,100ExpensesCosts of Goods Sold $500Depreciation $50Advertising $50Salaries $100Supplies $100Interest Expenses $50Total Expenses $850Net Income $250

$1100 –$850---------$250

Cert IV - M. S. Martin May 2012

Exercises

Cash Flow

Cert IV - M. S. Martin May 2012

Exercises – Cash FlowHandout

Jan Feb Mar Apr May JunOPENING Bank Balance

Progress PaymentsOther Income

TOTAL CASH IN

ExpensesOther Outflows

TOTAL CASH OUT

NET CASH FLOW

CLOSING Bank Balance

Cert IV - M. S. Martin May 2012

Exercise 1 – Cash Flow

Jan Feb Mar Apr May JunOPENING Bank Balance $6,000.00 $12,000.00 -$1,000.00 $1,000.00 $4,500.00 $14,500.00

Progress Payments $15,000.00 $10,000.00 $12,000.00 $20,000.00 $14,000.00 $16,000.00Other Income $2,000.00 $1,000.00 $3,000.00 $0.00 $1,000.00 $3,500.00

TOTAL CASH IN $17,000.00 $11,000.00 $15,000.00 $20,000.00 $15,000.00 $19,500.00

Expenses $10,000.00 $24,000.00 $11,000.00 $6,500.00 $5,000.00 $8,000.00Other Outflows $1,000.00 $0.00 $2,000.00 $10,000.00 $0.00 $5,000.00

TOTAL CASH OUT $11,000.00 $24,000.00 $13,000.00 $16,500.00 $5,000.00 $13,000.00

NET CASH FLOW $6,000.00 -$13,000.00 $2,000.00 $3,500.00 $10,000.00 $6,500.00

CLOSING Bank Balance $12,000.00 -$1,000.00 $1,000.00 $4,500.00 $14,500.00 $21,000.00

Cert IV - M. S. Martin May 2012

Exercise 2 – Cash Flow

Jan Feb Mar Apr May JunOPENING Bank Balance $10,000.00 $8,000.00 -$5,800.00 -$800.00 -$2,800.00 $6,400.00

Progress Payments $10,000.00 $12,000.00 $16,000.00 $15,000.00 $12,000.00 $14,500.00Other Income $1,000.00 $1,000.00 $1,000.00 $0.00 $2,000.00 $2,000.00

TOTAL CASH IN $11,000.00 $13,000.00 $17,000.00 $15,000.00 $14,000.00 $16,500.00

Expenses $12,000.00 $24,800.00 $8,000.00 $5,000.00 $4,800.00 $8,000.00Other Outflows $1,000.00 $2,000.00 $4,000.00 $12,000.00 $0.00 $5,000.00

TOTAL CASH OUT $13,000.00 $26,800.00 $12,000.00 $17,000.00 $4,800.00 $13,000.00

NET CASH FLOW -$2,000.00 -$13,800.00 $5,000.00 -$2,000.00 $9,200.00 $3,500.00

CLOSING Bank Balance $8,000.00 -$5,800.00 -$800.00 -$2,800.00 $6,400.00 $9,900.00

Cert IV - M. S. Martin May 2012

Exercise 3 – Cash Flow

Jan Feb Mar Apr May JunOPENING Bank Balance $7,000.00 $5,000.00 -$7,000.00 -$7,000.00 -$13,000.00 -$3,000.00

Progress Payments $10,000.00 $12,000.00 $11,000.00 $14,000.00 $14,000.00 $12,000.00Other Income $1,000.00 $2,000.00 $1,000.00 $0.00 $2,000.00 $4,000.00

TOTAL CASH IN $11,000.00 $14,000.00 $12,000.00 $14,000.00 $16,000.00 $16,000.00

Expenses $12,000.00 $26,000.00 $8,000.00 $5,000.00 $6,000.00 $8,000.00Other Outflows $1,000.00 $0.00 $4,000.00 $15,000.00 $0.00 $5,000.00

TOTAL CASH OUT $13,000.00 $26,000.00 $12,000.00 $20,000.00 $6,000.00 $13,000.00

NET CASH FLOW -$2,000.00 -$12,000.00 $0.00 -$6,000.00 $10,000.00 $3,000.00

CLOSING Bank Balance $5,000.00 -$7,000.00 -$7,000.00 -$13,000.00 -$3,000.00 $0.00

Cert IV - M. S. Martin May 2012

References

• Competency reference text for ‘Apply Legal Requirements & Manage Small Business Finances’

• Web sites as listed below:• http://www.google.com.au/imghp?hl=en&tab=wi• http://www.austlii.com/• http://en.wikipedia.org/wiki/Cash_flow• http://

www.investopedia.com/articles/04/033104.asp#axzz1wJOijbRt

• http://sbinformation.about.com/cs/accounting/a/uccashflow.htm