Track your downfall with a simple cashflow forecast.

February 21, 2017

This is the second of a series of articles written to help designers charge for their work. It was written whilst I was a director at Multiple States.

Now you know how to get money before you work and set an hourly rate using maths I will tell you about another VITAL tool in the survival of your new (or old) design practice — the cashflow forecast spreadsheet. Cashflow is the flow of money in and out of your business. This sheet is going track that and tell you how much money you are going to earn and when. It also is going to provide a playground for you to financially test your business decisions (like hiring a new person). It will become the most important spreadsheet in your google drive, hands down.

Overview

This sheet will record your confirmed sales and your expenses on a month by month basis. It will then deduct those expenses from you sales to show you your bank balance at the end of the month. By doing this you will see in clear black and white when your business is going to run out of money. Then you can prepare!

Sales

Your first table will have the money that you expect to earn each month for the year (the example only shows 6 months but you get the gist). Only put sales in here if they are confirmed. Better to prepare for the worst than to put jobs that are only pie in the sky. Wait till the contract is signed (if you have one…) and the schedule is in place before you start counting the money. As you will always be collecting money BEFORE you work you can quite confidently predict when the money will be in your bank. Tally the totals in the bottom row. As you can see above the bottom row is a wildly fluctuating figure. This is a typical situation. Your task is to create some sort of regularity for yourself out of those figures.

Expenditure

Your expenditure consists of everything you predict you will spend. In the example the first row covers your software subscriptions, snacks and beers. The next row covers your salary. This is where you give yourself some stability. Your business may earn $3000 in a month but you do not take that out of the business account. You pay yourself a lower wage on a regular basis. That way you can better plan out the rest of your life, safe in the knowledge that you will get that money every month. The third row is for some freelancers you know you will need in Feb to help on the big Apple job (don’t want to stuff that one up). And then you have your rent. The next step is to join the sales and the expenditure together.

Putting it together

With the month by months sales and expenditure calculated we can now generate a pretty good forecast of our cashflow.

What the rows mean:

  • Monthly Balance: This is your income minus your expenditure. You can see it can be positive or negative. It is what will go into (or out of) your bank each month after paying out your salary and other expenses.
  • Brought Forward: This is the cumulative balance (see below) brought forward from the previous month. In January this was zero as you hadn’t started your business yet. But by the end of January you had a surplus of $200. This meant that in February you carried over that $200.
  • Cumulative Balance: This is the Monthly Balance plus the Brought Forward Cumulative Balance. This will be what is in your bank at the end of each month.

There you have it! Your first Cashflow Forecast. This is the base of your entire practice. At Multiple States we consult ours every month in order to make observations that might help the business.

Making Observations

From the example cashflow sheet we can already make some seriously handy observations:

  • We are losing money in April. This is not the end of the world and may just be a product of working on jobs we have already been paid for but it is worth noting. Perhaps we can bring the Nike payment forward somehow? Tell them we could start earlier? Perhaps we could squeeze a little $1000 job in to plug the gap?
  • The regular money from Mum and Dad is pretty important. That job the Mum and Dad give us every 2 months is seriously helping our stability. Lets try and get some more clients that will require regular work.
  • We could probably afford a little pay rise. In this example we are in pretty good shape. Perhaps we could afford to make our pay rise in April more than $100? Yeah… Lets do it!
  • We might be able to afford more help. We have a healthy balance at the end of March, maybe we could get a freelancer to help with the work in April? This would free us up to get that extra job in.
  • We are gonna be OK!!! The cumulative balance at the end of Jun will pay us our wage and expenses for the following 3 months without ANY extras sales. That is always comforting.

As always, if you have any comments or questions please feel free to ask in the comments below.

This is a Articles post.