Automate Your Cashflow

Watching your bank balance go up and down really doesn’t tell you much. You could be making money or losing money. Subconsciously you know this and you’re worried about it.

I LOVE this idea of automating transfers for different purposes in your life. Setting amounts aside in advance. The above diagram is for personal finance, but the principle can be applied to your business - put money aside in advance, regularly. [Source: thanks to Remit Sethi - LINK]

I LOVE this idea of automating transfers for different purposes in your life. Setting amounts aside in advance. The above diagram is for personal finance, but the principle can be applied to your business - put money aside in advance, regularly. [Source: thanks to Remit Sethi - LINK]

If you have cashflow to manage and you struggle to understand where you are at, this is a no brainer. Just do it!

  1. Grab you bank statements and highlight your fixed expenses. Include wages if they are resonably steady.

  2. For quarterly and annual expenses like insurance, council rates etc grab those and from your accounting software and work out the amount per month for each.

  3. Add up your fixed expenses for a month, divide by 4. This is your ‘future payments’ weekly provision.

  4. Create a new ‘future payments’ account for your business - this can be done over the phone usually.

  5. Create a weekly transfer from your operating account to ‘future payments’ account. Pick a day the account balance is usually high if you can.

Mike Michalowicz elaborates on this type of method of automation in ‘Fix This Next’ but more so in his book ‘Profit First’.

Mike Michalowicz elaborates on this type of method of automation in ‘Fix This Next’ but more so in his book ‘Profit First’.

From here, you pay your fixed expenses from this new account.

Also;

  • If you are able to, use an offset amount against your mortgage to keep these funds - saves interest!

  • You can include future tax payments here as well, or have a separate account and automatic transfer if tax liabilities might vary.

The piece of mind and clarity you will get from automating this part of your cashflow management is well worth it. The bank provides the automation and structure for you to do this, so why not use it? The costs are known in advance and the bills will certainly come, so you WILL need to deal with it. So why not do so in advance, when you have the cash to put aside! This way you avoid over committing yourself or over spending and then leaving yourself with a problem.

Believe me this does not take long to do and is well worth it.

Thomas Woodbury