QuickBooks Cash Flow Projector
The QuickBooks Cash Flow Projector.
In business, “cash-flow is king.” For an established business it's not as crucial as net income and working capital, but it's still an important way to evaluate how your business is performing. For newly started and young businesses cash-flow is usually thin, and can mean the difference between your business prospering or struggling. What you need is a way to project how much money is going to flow into your business over the next few weeks or months.
QuickBooks offers a variety of tools to help you with forecasting cash-flow; these include the Cash Flow Projector and Cash Flow Forecast report. These tools use different parameters in forecasting your company’s cash-flow. The Cash Flow Forecast report is more structured than the Cash Flow Projector, but it provides great details about your Accounts Receivable. The Cash Flow Projector is an interactive tool, not simply a report; however, you need to fully understand the tool before attempting to use it. A lot of QuickBooks users are not even aware of these tools; others have looked at these features and thought to themselves, ‘gosh that seems confusing’; and still others wish there were better instructions on how to use these tools. The Cash Flow Forecast report is fairly straight forward; however, many people find the Cash Flow Projector difficult to understand, in terms of where the numbers come from, and complex to use. This article focuses on a step-by-step process for the use of the Cash Flow Projector.
The Cash Flow Projector
The Cash Flow Projector was designed to answer just one question: “Over the next six weeks, will my current cash assets, plus my projected revenue, be enough to cover my payables coming due?” Almost everyone in business has at times pulled out a yellow-pad and added up their receivables along with cash-on-hand, and then started subtracting their accounts payable. The bottom line is always, “can I pay all of my bills?”
Before you begin using the Cash Flow Projector, you need to decide the following:
- What bank accounts can you pull cash from when needed?
- Do you intend to manually enter receivables you expect over the next six weeks, or do you want to use a forecast?
- Do you want to manually enter your anticipated payables not already included in your QuickBooks Accounts Payable?
- Do you want to use all of the bills that you’ve entered in Accounts Payable in your estimate of future costs?
A wizard will guide you through these Cash Flow Projector steps:
1. Identify the cash account(s) you will be using.
2. Select the method to project cash inflows.
3. Select the expenses you expect to pay during the projection period.
4. Review (and adjust) amounts and payable dates for your upcoming Bills.
5. Finish and Review the resulting cash projections.
Using the Cash Flow Projector
To start the Cash Flow Projector open the QuickBooks Company menu; then select the Planning and Budgeting menu option; and then select Cash Flow Projector.
The Cash Flow projector finds your current cash balance; asks you how much money you expect to take in during the next six weeks; queries you about how much money you expect to spend during the next six weeks; and then informs you of the result when it takes your current balance, adds your revenues, and subtracts your costs. We will now step through each of the steps in the Cash Flow Projector wizard.
The First Step – Identify the cash account(s) you will be using.
The Cash Flow Projector needs to know which accounts need to be retroactively examined for your chosen six week period to see how much cash posted to each account; so choose any or all of the available accounts that the Projector displays in this window, these will typically be your Bank accounts and Undeposited Funds.
The Second Step – Select the method to project cash inflows.
There are several different ways the Cash Flow Projector forecasts your cash receipts, these include ‘the last six weeks’, or ‘the last six weeks from one year ago’. Regardless of which ‘six week period’ you select, you can either use each week’s total receipts, or an average of the six weeks’ total receipts. By default the Cash Flow Projector makes use of a weighted average of the most recent six weeks. The Cash Flow Projector then uses your chosen six week history to project how much cash will come in during the next six weeks; these receipts appear in the Itemized Cash Receipts dialog box.
There is an oddity associated with this step if you transfer funds. For example, if you post $1,000.00 into one account, and then a few days later transferred $500.00 from the original account into a different account, the Cash Flow Projector will assume you actually deposited a total of $1500.00. So, if your business makes ‘funds transfers’ between cash accounts, you will probably want to exclude your cash history, and post your cash receipts manually. If you elect that option, the projected cash receipts generated from the selection of cash accounts will disappear so that you can enter any cash receipts you feel are appropriate.
Your manual calculations can be based on any pattern that makes sense for your particular business. Some examples include money that is anticipated from new sales (but not yet invoiced), the Accounts Receivable Aging or Collection reports, other cash inflows such as loan proceeds, etc. The data entry is based on a date and amount in the itemized table format. No matter which method is chosen, it is possible to adjust the weekly amounts.
The Third Step - Select the expenses you expect to pay during the projection period.
You now need to select the cash disbursements that are not included in Accounts Payable; this will probably include expenses such as payroll, payroll taxes, sales taxes, cash disbursements, owners’ draws, and loan payments. You can determine the frequency of any of these, such as weekly, bi-weekly, monthly, semi-annual, or annual, as well as one-time expenditures.
The Fourth Step - Review (and adjust) amounts and payable dates for your upcoming Bills.
Review the Accounts Payable estimate for money that will be spent based on the due dates of the individual bills. You should always enter all bills to be considered prior to beginning a cash flow projection; any bills entered after you have begun a projection will NOT be included in your projection.
It is possible to adjust the payment date based on your best guess of when funds will need to be available or when you will actually pay the bills. It is also possible to enter an adjustment as needed for weekly expenditures.
The Firth Step – Finish and Review the resulting cash projections.
Once the cash inflows and outflows have been entered, and you have reviewed (and adjusted) them, you can complete the cash flow projection by clicking on the ‘finish projection button’. Your cash flow projection will appear, it is possible to print this report or to save it as a PDF. If you are unhappy with the results, you can simply close the report and return to the input screens to start over, altering your data along the way, either to further refine the quality of the projection, or to produce ‘what if’ scenarios.
The QuickBooks Cash Flow Projector is one tool for the analysis of your business and one of the fundamental measures of success, 'cash-flow'. While this tool may not be the most sophisticated forecasting option available, it is a valuable asset that is 'included' inside QuickBooks even if a lot of users are not even aware that it is there.