Financial planning and cash flow: building the numbers behind your business plan

Why the numbers belong in your business plan

The words in a business plan describe what you hope will happen. The numbers test whether it can. A financial model, which is simply a set of linked forecasts, answers the questions every owner, lender and investor asks:

• How much money do I need to get started?
• How much do I need to sell each month to cover my costs?
• When will the business pay me?
• Which months will be tight, and how big is the gap?

Many business plan templates skip the cash flow forecast, and that’s exactly where small businesses come unstuck. If you only build one table, make it that one.

Profit is not cash

Profit is what’s left when you take your costs away from your sales over a period. Cash flow is the timing of money actually arriving in and leaving your bank account.

They drift apart for everyday reasons: customers pay 30 days after you invoice, you buy stock before you sell it, equipment is paid up front but lasts for years, and loan repayments leave your account even though they aren’t a “cost” in the profit sense. That’s why a business can show a profit and still run out of money.

The four sets of numbers

1. Start-up costs

Everything you need to spend before you take your first dollar: equipment, fit-out, initial stock, bonds and deposits, registrations and licences, website, signage, insurance premiums and launch marketing. Add a contingency of 10–20%, because something always costs more than the quote.

2. Sales forecast

Build sales up from what you can actually see, not down from the size of the market. A simple way:

number of customers × how often they buy × average sale

For example: 40 customers a week × 1 visit × $55 average sale = $2,200 a week. Write down where each number comes from: a competitor’s opening hours, a pre-order list, your own past results. Then ramp up slowly; new businesses rarely hit full speed in their first three months.

3. Break-even point

Your break-even point is the level of sales that covers all your costs, with nothing left over. You need two numbers:

• Fixed costs: what you pay each month whatever you sell (rent, insurance, software, your own minimum drawings, loan repayments).
• Contribution per sale: what’s left from each sale after the costs that rise and fall with sales (stock, ingredients, packaging, card fees).

break-even sales per month = fixed costs ÷ contribution per sale

Example (illustrative only). A small café has fixed costs of $12,000 a month. Its average sale is $12, and ingredients and packaging cost 35% of that, leaving $7.80 per sale. It needs about 1,540 sales a month to break even, roughly 60 customers a day over 26 trading days. If the owner can’t see 60 customers a day coming through the door, the plan needs to change before the lease is signed.

4. Cash flow forecast

A month-by-month table for at least the first 12 months showing:

• Opening balance: cash in the bank at the start of the month.
• Cash in: sales actually received, loans or capital put in, any grants.
• Cash out: start-up spending, stock, rent, wages, marketing, utilities, loan repayments, your own drawings.
• Net cash flow: cash in minus cash out.
• Closing balance: opening balance plus net cash flow, which becomes next month’s opening balance.

State whether your figures include or exclude GST, and label anything that’s an estimate.

Example (illustrative only). A new business starts with $30,000 of savings, spends $18,000 setting up, and has regular costs of $10,000 a month while sales build:

Sales grow every month and the business is profitable from month 4, yet it runs out of cash in month 3, and has no buffer at all for four months. The forecast shows the owner needs roughly $10,000–15,000 more funding, or a cheaper fit-out, before opening. That’s the whole point of doing it.

Building your model: practical tips

• Use a spreadsheet, with one sheet for assumptions (prices, customer numbers, costs) and the forecasts calculated from it. Change an assumption and everything updates.
• Make three versions: expected, slower (sales 30% lower, arriving later) and better. Plan your funding around the slower case.
• Include yourself. If you need $4,000 a month to live on, it’s a cost. Leaving it out makes the plan look better and your life worse.
• Don’t forget irregular costs: annual insurance, registrations, equipment replacement, quiet seasons.
• Start from a template. Our free business plan template includes start-up costs, sales and cash flow tables, and business.gov.au offers a free cash flow statement spreadsheet.

Keeping cash flowing once you’re trading

The forecast is the plan; your bank account is the reality. Compare the two every month, and look at cash every week.

1. Check your cash position weekly: what’s in the bank, what’s owed to you, and what you owe in the next four weeks.
2. Invoice the same day you finish the work, with clear payment terms, and follow up the day an invoice is overdue. Our guide to getting paid covers terms, deposits and payment options.
3. Ask for deposits or progress payments on larger jobs.
4. Time your spending: buy stock closer to when you’ll sell it, and negotiate longer terms with suppliers where you can.
5. Keep money that isn’t yours separate, such as GST you’ve collected, so it’s there when it’s due.
6. Build a buffer. Aim to hold enough cash to cover at least one to three months of fixed costs.
7. Talk early. If a shortfall is coming, speak to your accountant, suppliers or lender before it arrives, not after.

Warning signs

• You’re regularly paying bills late or juggling which one to pay first.
• Sales are growing but the bank balance isn’t.
• A single customer owes you a large share of your outstanding invoices.
• You’re using personal savings or credit cards to cover ordinary running costs.

Any one of these is a reason to update your cash flow forecast this week and get advice.