Managing cash flow effectively is critical to your business's financial health and profitability. Our cash flow improvement calculator can help you understand how your business is performing, and see where to make adjustments.

Using the cash flow calculator

Cash flow is one of the most important business drivers in any successful company – so it pays to be across your cash flow cycle. This cash flow calculator is a useful tool for pinpointing improvements you could make to your business. All to ensure you don’t run into cash flow problems and bad debt.

There are three sections of the calculator to fill in:

  • Your business details (including financial data)
  • Your key performance indicator results (including marginal cash flow and cash cycle)
  • Your adjustments (called My Power of One).

To start using the calculator, you'll need to fill in your business's financial data first (on the left-hand side). This information is used to give you results shown in the key performance indicator section (on the top right-hand side). You can then make adjustments to your cash flow cycle (on the bottom right-hand side) to see how those changes affect the results.

Step 1: enter your business details

In the first section at the top left of the calculator, nominate your industry type. Consider whether ‘service’ or ‘other’ best suits your business. Service industries have different cash flow and working capital needs to businesses with tangible products to sell, which is why we’ve made this distinction. Below, use the slider to enter in the time period of the financial information you’re providing. Is it from the last 12, six or three months?

Step 2: enter your financial data

Use actual financial data (or hypothetical data if you’re just researching) from the key stages of the cash flow cycle:

  • Revenue: this is your business income (in total) before taxes and expenses (and includes fee revenue if you’re a service industry).
  • Cost of goods: this refers to costs incurred by your business directly in the production of revenue, like factory operating costs, direct labour, materials or transport costs.
  • Overheads: the costs of running a business, like rent, gas, electricity and wages.
  • Debtors: this is the total owed to you by your customers for goods or services you’ve supplied them.
  • Inventory: the total stock on hand for resale.
  • Creditors: the total amount you owe to your suppliers.

Step 3: review your key performance indicator (KPI) results

After entering your financial information, the calculator will provide a breakdown of results in key areas of focus for your business cash flow.

Marginal cash flow

The cash flow margin measures how well your business operations earn cash from the sales of products or services. It’s a key profitability indicator. The result shows the amount of cash flow in cents that your business is generating per dollar of revenue.

Your business’s cash cycle

This shows the total amount of time it takes for your customer to pay you for your product or service. It starts from the purchase of inventory or the provision of services and ends on the day you’re paid.

Gross margin

This is the margin your business makes each time it makes a sale. As this increases, so does your profit and cash flow. The result shows the amount in cents you make for each additional dollar of revenue generated.

Net profit

The net profit formula calculates the profit that remains after all expenses involved in running your business have been paid. The result shows the amount of cents per dollar of revenue minus overhead costs.

Investment in working capital

Working capital is the money needed to fund the day-to-day operations of your business, such as paying suppliers and expenses. The result shows the amount of cash flow in cents you have invested in working capital for every dollar of revenue.

Debtors days

This is the average time between the sale of goods or services and receiving payment for them. The faster you collect from your debtors the better your cash flow.

Inventory days

This is the average length of time you hold on to inventory before it’s sold. The quicker you get rid of it the better.

Creditors days

This is the average time it takes you to pay your creditors for your inventory or service. The longer your payment terms are, the better your cash flow will be.

Step 4: make adjustments to improve your cash flow plan

Now you should have a better indication of the financial health of your business and how it’s performing in terms of cash flow margins. Now you can move to the next section of the calculator: My Power of One.

You can adjust these key indicators (on the left-hand side) by increments of one day or one per cent (the default values). This allows you to see what effect this could have on your business cycle, your marginal cash flow and your cash flow amount.

You can then use these different scenarios to start making small changes in your business plan to help improve your cash flow cycle. If you're ready to go, start using the cash flow improvement calculator.

Once you've got a good understanding of the calculator, you might also find it useful to do a monthly cash flow forecast – here's our handy cash flow forecast template.

Important information

The information contained in this article is correct as of July 2018 and is intended to be of a general nature only. It has been prepared without taking into account any person’s objectives, financial situation or needs. Before acting on this information, NAB recommends that you consider whether it is appropriate for your circumstances. NAB recommends that you seek independent legal, financial, and taxation advice before acting on any information in this article.

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