Insights August 07, 2013

How Much Money Have We Got?

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Once you get going as a business, thinking about the finances of the company becomes a job in and of itself.  This is rather unlike the nature of personal accounting where, if you are like us, you can easily get by with some mental maths.  Accepting the need to peel away from the excitement of projects and dedicate some time every week, if not every day, for money management is highly advisable.

How much money have we got? The simple question of how much money your business has does not often have a simple answer.  You can send out invoices but not receive payment till 30, 60 or even 90 days later.  On the other hand, you may have regular expenses such as cloud-based services which require instant payment.  The time lag between money coming in and money going out complicates the situation just enough that mental maths are no longer adequate.

For creative start-ups, particularly those that are services oriented, basic accounting nous may not be part of your skills base.  Knowing that you should be keeping close tabs on your money and knowing how to do this are indeed very different things.  We were fortunate enough to have a friend, Adnan, who is an accounting expert with a knack for translating financial language into a laymen’s vernacular.  He helped us understand double-entry bookkeeping, balance sheets and income statements.  But more critically, he singled-out the most important concept for a business:  cash flow.

In our personal finances, the simplicity with which we consider our regular income, regular expenses and intermittent expenses makes it easy to lose sight of the fact that we are basically thinking about cash flow.  We consider how much money we have now, how much we will have in a few weeks, and, after we have paid for our housing, to what extent we can afford to go out, buy new clothes, or go on holiday.  With the smallest of efforts, we might even think to save a portion of our income for a few months in anticipation of something expensive.  These skills with which we manage finances in our personal lives are exactly what business owners need to do for their companies.

However, business cash flow has a greater degree of complexity.  The irregularity of business income and expenses contributes to this.  Additionally, business may commit to numerous long-term overheads (e.g. staff payroll, insurance, rent, equipment leasing).  In order to keep on top of all this, a simple spreadsheet is all that you need.


Depending on your business, you may have many weekly transactions or instead a few monthly ones.  Consequently, a twelve month cash-flow projection may not be adequate.  Perhaps you need a monthly or bi-monthly one as well.  The concept is the same: identify your guaranteed Income and estimate your expenses (possibly inflating the values to be conservative).  The difference between the two, added to your equity, will give you an idea of how much money you have now, and how much you might have in the future.

We have created a cash flow template which you can download and modify.  The template already has some of the basic maths operations such that amending the titles and values to suit your business should already begin to provide you with an understanding of how much money you have.

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