Cash Flow

Published on 20th August 2019


Let’s now start with cash flow.

This piece on cash flow has been taken from “Setting Up a Therapy Business” ISBN 978-0-9566282-0-6 by kind permission of the author Gill Warren, a chartered Accountant and life coach.

Cash flow

Small businesses in particular can suffer from cash flow problems because they’re waiting to be paid by their customers and cannot afford to pay their suppliers, including her Majesty's Revenue and Customs for tax and VAT. This government department can and do close businesses down when not paid. Banks can be jittery about lending to an unknown business and therefore will be very quick to charge high fees for an un-authorised overdraft.

It is really important then that you have an idea of what is coming into your bank account and what is going out of your bank account. For this purpose you need to draw up a cash flow forecast. A cash flow forecast shows you month by month was coming into the business was going out of business and the net inflow or outflow showing the figure to be carried forward to the next month.

As a therapist I strongly recommend that you do not offer any credit to any of your customers. This may sound harsh but you do need to be paid upfront for the work that you have done. Some therapists will accept credit cards with credit card companies charging a fee usually between 2% and 4% of the total amount for the use of a credit card service. You'll need to consider then whether it is worthwhile for the extra convenience of your clients you wish to offer that service.

Be prepared in the first year of trading for income to be half of what is expected and expenditure twice what is expected. This may sound cynical but at least it gives you an idea of the potential problem if you do not have enough cash to pay your immediate creditors (the people you owe money to).

What is included in a cash flow forecast?

A Cash flow forecast which can easily be done on something like an excel spreadsheet shows the expected  payments into the bank account and payments out of your bank account.

So a cash flow forecast is a record of when you think you will receive money into the business and when you will have to pay money out. A  business plan would ideally include a minimum of a quarterly cash flow forecast for the first year.

Receipts-the money in

Show in the forecast:

  • Your income from sales
  • Any interest earned in the bank account
  • Any payment of capital into the bank account (capital here is a lump sum of money you have invested into the business or an amount you have borrowed and put in)
  • Sale of any assets (eg a piece of unnecessary equipment)

Add up all your income and receipts to give a total receipts figure.

Payments-the money out

Include in the forecast:

payments to suppliers (eg insurances, advertising and marketing, heating and lighting stationary, professional fees, telephone)

cash purchases (stamps, refreshments)

Businesss credit card payments

any drawings (that is the amount you pay yourself as a form of salary)

any tax payments

bank interest and any bank loan repayments

Add all of your payments from your bank account to give a total payments figure.

Net inflow or outflow

Take the total receipts figure calculated above minus the total payments figure per month to arrive at the net inflow or outflow into the bank account.

Opening bank balance

This figure is the amount you actually had in your business bank account at the start of the month. If you owe money to the bank then this figure should be shown as a minus figure depicted in accounts like this (£).  

The opening bank balance for one month will be the closing bank balance from the previous month.

Add the net inflow or deduct the net outflow of the month (the figure calculated above) to the opening bank balance to arrive at the closing bank balance this month.

Continue this for each month for a minimum of 12 months.

Remember this is a forecast- a prediction if you like. Once a month has occurred you will have some real live financial figures which are known as actuals. (what actually happened as opposed to what you predicted would happen).

I recommend that you include the actuals in another column as it gives you something to compare and measure against and you can see how you are doing against your forecast. This is important for example if you find you have not made the sales that you anticipated. At least you can take some action to either increase sales and reduce costs or possibly to obtain more funding before you get into trouble with the banks for going overdrawn without permission.


Profit is produced by taking the difference between sales and expenses in a particular period for example a year. It is possible to make a profit and have no cash if for example you have had to pay cash up front for rent in advance.


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