How to Create Your Cash Flow Analysis for the Year

As an agency owner, managing cash flow is one of the most crucial aspects of running your business. Sure, it’s essential to know how much is coming in and going out. But there’s a less understood, but just as important, part of cash flow tracking, which is ensuring that you continually have the cash to meet or exceed your short, mid, and longterm goals.

You can do this by creating a cash flow analysis based on your budget, investments, and planned expenses. In this blog post, we’ll dive into how to create your cash flow analysis for the year by tracking cash inflows and outflows from operating, investing, and financing activities.

To begin creating your cash flow analysis for the year, you’ll want to start with your cash balance at the beginning of the year or the time period you want to track. This will give you a baseline for your cash flow. Next, determine your minimum operating cash balance, which should be one month’s payroll plus 35% of your profits from the last three months (to cover your potential tax burden).

Min operating cash balance = one month’s payroll + 35% of last 3 months profits

This will ensure that you have enough cash on hand to cover your operating expenses and unexpected costs.

With those figures in mind, you’ll want to track how much cash is coming into the business, as well as how much cash is going out of the business by month for the entire fiscal year. This will give you a clear understanding of your cash flow. There are three elements of your cash flow analysis that you should understand:

  1. Cash from operating activities
  2. Cash from investing activities
  3. Cash from financing activities.

Cash From Operating Activities:

Cash from operating activities reflects the cash that is coming in from operating your business. Your net income is generally a good guide for this.

Cash From Investing Activities:

Cash from investing activities reflects any capital investments that you make into the business, such as building out your office.

Cash From Financing Activities:

Cash from financing activities is the cash that either comes in from investors, debt, or distributions you take as an owner.

To create a comprehensive cash flow analysis, you’ll want to predict your cash coming in and out from all three of these areas. This will help you make informed decisions about how to manage your cash flow, such as when to hire or cut back on staff.

Managing your cash flow is essential to running a successful agency. By creating a cash flow analysis for the year, you can track your cash inflows and outflows and plan for the future. To get started, determine your starting balance and minimum operating cash balance, then track your cash from operating, investing, and financing activities. Regularly reviewing and updating your cash flow analysis will help you make timely adjustments to your financial plans and help you achieve your goals.