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How Clever Management Accounts Can Simplify and Improve Cash Flow Management

management accounts showing cash flow analysis

Managing cash flow is crucial for any business, but if you’ve tried to extract meaningful cash flow information from your online bookkeeping system like Xero or Sage, you might find yourself confused. These systems are often strong on profit and loss reporting, helping you understand how much money you’re making, but they can be lacking when it comes to providing clear insights into your cash flow.

As an accountant, I’ve noticed this gap and have developed a straightforward method to help business owners get a better grasp on their cash flow. Here’s a structured approach you can use to simplify and improve your cash flow management.

Understanding Cash Flow Reports

Typically, online bookkeeping systems provide two types of cash flow reports:

1. Total Cash In and Out: This report shows the total cash movement in and out of your bank account.

2. Operating Cash Flow Statement: This formal statement reconciles your profit and loss to your cash balance. However, it’s complex and often not well-understood outside of large corporate settings.

Neither of these reports effectively helps you understand what’s driving your cash flow or alerts you to potential future cash flow problems. Here’s a more user-friendly structure I recommend.

Creating a Simple Cash Flow Statement

To get a clear picture of your cash flow, I suggest using a summarized version that avoids complex accounting terminology. Here’s how you can create a simplified cash flow statement using Excel:

1. Start with Your Opening and Closing Cash Balance: Track your starting balance at the beginning of the period (e.g., the first day of the month) and your closing balance at the end of the period (e.g., the last day of the month). This helps you quickly see the net change in your cash position.

2. Track Customer Payments: Record all the cash that comes into your bank account from customer payments. Remember, this should reflect actual cash received, not just sales figures.

3. Record Operating Expenses (Opex): This includes all your regular operating costs such as rent, utilities, software subscriptions, and insurance. For businesses with significant costs in specific areas (e.g., marketing for online businesses), consider breaking out those expenses separately.

4. Payroll Costs: Include all payroll-related expenses such as salaries, taxes paid to HMRC, and pension contributions. This will differ from your P&L statement, as payroll taxes and pensions are not paid in the same month as salaries.

5. VAT and Corporation Tax: Track these taxes separately, as they can be significant and paid on a different schedule (e.g., quarterly for VAT and annually or quarterly for corporation tax).

6. Capital Expenditure (Capex): Record any significant purchases intended to be used in your business for more than a year. This is important as these are usually large, one-time expenses that can impact cash flow.

7. Loan Repayments: Include both the interest and principal repayments. This helps you keep track of your debt obligations and their impact on your cash flow.

8. Directors’ Loans or Dividends: For many small businesses, directors take a combination of salary and dividends. Keeping track of these payments separately can help you manage cash flow more effectively and make decisions about delaying payments if necessary.

Analyzing the Cash Flow Statement

Once you’ve created this statement, it’s essential to use it effectively:

- Look at Trends: Maintain at least six months of data to identify trends and unusual fluctuations.

- Forecast Future Cash Flow: Depending on the stability of your cash flow, forecast for the next three to twelve months. This helps you anticipate potential issues and take proactive measures.


By creating a simple, clear cash flow statement, you can gain better insights into your business’s cash flow and make informed decisions. If you need help setting this up, feel free to reach out to me. This approach allows you to identify problems early and take steps to ensure your business remains financially healthy.



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