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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