How To Use Excel For Cash Flow Management In Small Business?

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An estimated 82% of small businesses fail because of poor cash flow management. If you’re not actively monitoring your cash, your business’s performance will ultimately suffer.

For small business owners, cash flow management can be time-consuming, but tools like Excel can help. Let’s take a closer look at the basics of using Excel for cash flow management and how to build a cash flow projection template.

The significance of cash flow management in small business

How To Use Excel for Cash Flow Management in Small Business

Cash flow is the lifeblood of any business. If your expenses exceed your earnings, your business won’t be able to cover its operating expenses, and that includes:

  • Wages 
  • Utilities
  • Rent
  • Raw materials
  • Equipment 

Most businesses will run into cash flow issues at some point. For example, an unexpectedly slow season may lead to a cash gap. A line of credit or other form of short-term financing can help bridge that gap until sales pick back up.

However, if cash flow is consistently in the negative, your business may face an uphill battle and potentially be forced to shut its doors for good.

It’s important to remember that profitability doesn’t necessarily mean positive cash flow. A business can be profitable but cash-poor. If the underlying cash flow issues aren’t resolved, they could snowball and, eventually, eclipse profitability.

Proper cash flow management is essential, and for many small business owners, Excel is their tool of choice for managing and monitoring their cash flow.

Excel basics for cash flow management

Excel can be an effective tool for managing and monitoring cash flow, but it’s important to remember that automated solutions are often the better option. Manual methods, like spreadsheets, are time-consuming and increase the risk of errors.

Still, there are some benefits of using Excel to manage your cash:

  • Spreadsheets are easy to use and understand. 
  • It’s a cost-effective solution. You likely already use Excel in your day-to-day administrative tasks.
  • You can track your cash flow in real time.
  • Excel spreadsheets are highly customizable, so you can track your cash flow in a way that works for your individual business.

So, how do you start using Excel for managing your cash flow and creating forecasts?

Using excel for cash flow forecasting

Using cash flow Frog or a similar platform is better than relying on a cash flow projection template using Excel as your business grows. You'll find the more data you input into Excel, the more overwhelming it will become.

Cash flow management

However, for decades, people relied on Excel for forecasts and had success by following the process below:

  • Create main sections for operating, investing and financing activities.
  • Add columns for each month

Once you’ve done this, you’ll need to add the following rows under “Operating Activities:

  • Net income
  • Accounts receivable
  • Accounts payable

Investing activities should have two rows:

  • Fixed asset purchases
  • Net cash from investing

Financing Activities” should include the following rows:

  • Owner contributions
  • Notes payable
  • Cash from financing activities (net)

You can then add rows for your Increase of Cash (decrease), cash at the start of the month and cash at the end of the month.

If you want to manage cash flow for a certain period, such as last quarter, you’ll simply switch the “cash at the start of the month” to “cash at the start of the reporting period.”

You'll need to fill in all of your figures to determine your Net cash from each of the three types of activities. Excel cash flow monitoring is great for smaller businesses that don’t need real-time updates often.

Monitoring cash flow with excel

Excel allows you to easily monitor your cash flow for a predefined period of time, but you need to manually update the data. For example, for January, you would need to update the following rows to ensure that your calculations are accurate:

  • Net income
  • Accounts receivable
  • Accounts payable
  • Fixed asset purchases
  • Owner contributions
  • Notes payable
  • Cash from financing activities (net)

If you’re using the right SUM equation to add up the values, you’ll then see all of your “net” fields adjusted to the correct values. You can then see an up-to-date cash flow. Of course, this is just a basic cash flow template and is not a projection or forecast.

Forecasts and projections would require you to adjust values by a projected growth amount, such as 20%.

Advanced excel features for cash flow management

Advanced Excel Features for Cash Flow Management

Cash flow management calculations are basic, so you won’t need to make use of advanced Excel features. Of course, you’ll need a few features to make an accurate cash flow tracker, such as:

  • SUM

Excel does have forecasting functions that you can use, such as TREND and FORECAST, but they’re not necessary for basic cash flow management.

In conclusion

Monitoring cash flow is crucial when trying to grow a business. Your cash flow will dictate if you need outside funding and can remain operational without taking on debt. Excel can help you better manage your inflows and outflows to maintain healthy financials.

This article was written by the Netrocket team, a B2B inbound marketing agency that helps businesses to scale.

About the author 

Peter Keszegh

Most people write this part in the third person but I won't. You're at the right place if you want to start or grow your online business. When I'm not busy scaling up my own or other people' businesses, you'll find me trying out new things and discovering new places. Connect with me on Facebook, just let me know how I can help.

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