Findex: Mastering cashflow and budgeting for financial success

Paul Kerrins, Partner, Accounting and Business Advisory, Findex. Photo / supplied

OPINION

Managing personal or business finances starts with getting a good handle on cashflow and budgeting. It might not sound exciting but these two concepts are fundamental to financial stability and achieving your long-term goals.

Right now, a lot of businesses are struggling with cashflow. With rising interest rates and higher commodity costs, it’s not uncommon to reach the end of the week with little cash left or unpaid bills stacking up.

What is cashflow?

Cashflow refers to the movement of money in and out of your accounts. It is a crucial indicator of financial health, showing how well you manage your income and expenses. Cashflow can be categorised into three main types:

1. Operating cashflow: This is the cash generated from regular business operations or day-to-day activities. It includes revenues from sales and expenses such as salaries, rent, and utilities.
2. Investing cashflow: This involves cash transactions for investments in assets like property, equipment, or securities. It reflects the long-term investment strategy of a business or individual.
3. Financing cashflow: This includes cash movements related to borrowing and repaying debts, issuing stocks, or paying dividends. It shows how a business or individual finances its operations and growth.

With rising interest rates and higher commodity costs, it’s not uncommon to reach the end of the week with little cash left.

Why positive cashflow matters

Keeping a positive cashflow is important for a few key reasons:

• Liquidity: Ensures you have enough cash on hand to cover bills, expenses and any unexpected costs.
• Growth: Gives you the freedom to invest in new opportunities and grow your business.
• Debt management: Helps you stay on top of loan repayments, avoiding extra interest or penalties.
• Financial stability: Reduces the risk of running into financial trouble or facing insolvency.

What is budgeting?

Budgeting is simply making a plan for how to spend your money. This plan helps you allocate resources efficiently, ensuring that you can meet your financial goals. A typical budget includes:

• Income: All money coming in, such as salaries, business income, or investment returns.
• Fixed expenses: Regular costs that stay the same, like rent, mortgage payments, and insurance premiums.
• Variable expenses: Costs that fluctuate, such as groceries, entertainment, and utilities.
• Savings and investments: Money set aside for future needs or invested for growth.

Why budgeting is beneficial

• Control over your money: It helps you stay in charge of your money and avoid spending more than you can afford.
• Reach your goals: Makes it easier to save and invest so you can hit your financial goals, whether it’s a big purchase or long-term savings.
• Manage and reduce debt: Helps plan for loan repayments and work towards becoming debt-free.
• Less stress: Having a clear plan for your money takes a lot of the worry out of managing finances.

In summary, budgeting provides the roadmap for your finances, while cash flow management ensures that everything runs smoothly day-to-day. A well-thought-out budget supports positive cash flow by preventing overspending and keeping funds available for essential expenses. When used together, budgeting and cash flow management help you stay on track, avoid financial surprises, and build a stable foundation for future success.

Understanding cashflow and budgeting is key for maintaining financial health. By developing a well-thought-out budget and keeping a close eye on your cashflow, you can stay on top of day-to-day expenses while preparing for future financial goals. This approach helps ensure financial stability and equips you to navigate both current challenges and long-term opportunities. To get guidance on your specific circumstances speak with our accounting team at findex.co.nz