Using QuickBooks Cash Flow Report for Forecasting
It’s important to use metrics to run your business. Cash flow is one of the most important metrics for any business. It determines if you will have the money to continue operating day by day. Cash flow is an important business metric but it can be tricky to assess. It’s important to look ahead and project cash flow so you can avoid potential problems.
A Quickbooks cash flow report helps with this process. Forecasting gives you an opportunity to address immediate cash flow issues, avoid future problems, or get required financing to avoid eventual peril. Cash flow needs consideration beyond your regular financial statements. You really need to initiate cash flow forecasting, especially if your business is not really cash rich.
How to Run a QuickBooks Cash Flow Report
- Click “Reports”
- Click “Company & Financial” option.
- Click “Cash Flow Forecast”
- QuickBooks forms a report from your receivables, payables, and bank accounts. Adjust this report based on specified periods. If the report doesn’t seem plausible, you may have missed a purchase order, invoice, etc.
Compare the cash flow report against your statement of cash flows.
- Go to the Reports menu and click “All Reports”
- Click “Business Overview”
- Click “Statement of Cash Flows”
This shows actual cash flow over a specified period. Viewing historical data helps a business owner understand what’s influencing profits and losses and how to adjust to improve cash flow.
Cash flow is one of the most important metrics because if you run out of cash, you won’t be able to do anything in your business. It won’t matter how many orders you get or who owes you money because you won’t be able to pay your own bills and make payroll. The whole business could shut down.
- It’s important to look ahead to project cash flow, that way if you’re going to have cash flow problems you can see them coming.
- Projecting cash flow gives you the opportunity to fix the problem that is causing the cash flow issue or to get financing to weather the cash flow issues.
QuickBooks Cash Flow Forecast Projector
QuickBooks has a feature called the Cash Flow Projector. However, this feature is relatively basic, and there are better ways to forecast cash flow using your QuickBooks data.
“SMB owners may use some combination of QuickBooks and Excel (to put the information together). Some use the cash flow projector but I don’t see it being used too much. It’s a bit of an artificial tool. But if you keep your reports in QuickBooks up-to-date, you can derive a lot of good information from those current reports.” ~ Bernard Roesch
Here’s an alternative to using the QuickBooks cash flow projector:
Project Cash Flow with QuickBooks and Excel
- Create a report that shows sales you expect to receive in the next four weeks or other time period. (This could be a sales report based on current sales activity or an accounts receivable report with aging.)
- Export that to Excel.
- Create a report showing payments you expect to pay during that time with an accounts payable report or an expenses report based on recent expenses.
- Export that to Excel.
- Within Excel, match the time periods so you can see expected received payments and expected outgoing payments.
- Add those to see if your cash flow during that time period is positive or negative.
Cash Flow Types
Free and operating are common types of cash flow metrics, or ways to better understand the flow of money.
Operating Cash Flow
Operating cash flow measures money coming in from business operations. It allows a business owner and potential investors to gauge the ongoing value of a business. An owner can estimate how much of the overall cost is covered just by running the business.
Free Cash Flow
Free cash is what is left over after a business owner covers capital expenditures. Free cash flow is what a business has left from operating costs after all financial obligations are settled within a given time frame.
Cash Flow Statement
A cash flow statement tracks money coming in and out of the business. It reflects how much money is at hand as well as liquidity. Each business’ cash flow report looks different, yet essential elements remain. A statement of cash flow shows operating, investing, and financing opportunities.
Operating Activities
Operating costs show how much money a company makes each day by balancing incoming money (from sales, investments, etc) with operating costs (manufacturing costs, etc). It’s the best way to assess how much money the core of the business is generating.
Investment Activities
This reflects investments used to purchase or sell company assets. It could include the purchase of equipment, lease of company-owned land, etc. A business owner needs to see investments are bringing money in over time. Furthermore, you want to see that your business can pay for certain operations by leveraging specific assets.
Financing Activities
Financing activities accounts for cash received from or paid to lenders, creditors, or investors. This is where public companies report money from the sale of stock, payment of dividends, etc.
Cash Flow, Revenue, and Profit
It can be easy to confuse cash flow with revenue. Revenue is total income generated by sales. This is cash inflow — money coming into the business. Revenue is always associated with inflow.
However, cash flow involves money coming in and out of the business. Profit is what’s left after a business has paid all its debt and running expenses.
It’s possible to be a “profitable” business with negative cash flow. This can be seen by comparing an income statement to a cash flow statement. The income statement is based on accrual accounting and the cash flow statement is based on cash basis accounting. Learn what type is best for your business.
Accrual Accounting
Accrual accounting records revenue and expenses regardless of real time money flow. So, if you financed the purchase of equipment for $10,000, the cash flow statement would reflect the full purchase of $10,000. However, an income statement may categorize the purchase into monthly finance installments.
Cash Basis Accounting
This type of accounting tracks revenue when it’s received and expenses when paid. It does not involve accounts receivable or accounts payable. This is a simpler form of accounting, adopted by many small businesses.
One can imagine how business owners experience cash flow problems despite being “profitable.” Consider how long it can take clients to pay invoices; assuming that money is paid (regardless of actual payment) can create cash flow issues for a smaller business.
Cash flow problems happen when a business owner lacks clarity in differentiating profits and cash flow. Expenses are recurring yet income can be sporadic, which creates issues with balancing.
For example, this can happen to retail store owners who purchase inventory to display. The hope is that there will be enough ongoing customer demand to cover the cost of the inventory.
A bookkeeper provides a clear understanding of the inflow and outflow of cash. Furthermore, they can provide guidance regarding business operations and accounting software. For example, you can get paid faster by leveraging accounts receivable reminders in QuickBooks.
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