A quick note before we begin

This episode was recorded in 2025, when Cashflow Confident was my current programme and my work was positioned more heavily around money coaching. The dated launch promotion has been removed, but the Overflow Formula remains one of the core cashflow methods I use today.

I use overflow as my own planning term. It is not an accounting category and it does not replace the profit figure in your accounts. It describes the cash left after the business has covered tax, owner’s pay and the other financial commitments you have deliberately built into the plan.

Listen to the episode

In this episode

Your accountant says the business made a profit, your bank account contains money, aaaaaand you still cannot tell whether any of it is actually available to use.

That is the gap this episode closes.

We’re answering the most common questions about business overflow, including:

• what overflow is and how it differs from profit;
• how to calculate the exact amount your business needs to generate;
• why your bills should not be managed through arbitrary percentages;
• what overflow is for, including quieter months, debt and lifestyle goals;
• whether you need to track every transaction;
• how often to update a cashflow tracker;
• whether this is basically Profit First in a different outfit;
• and what to do when your current system already works.

First, what is business overflow?

Business overflow is the cash remaining after the money earned by the business has completed every job you assigned before it.

The broad order looks like this:

1. Revenue enters the business.
2. Business expenses leave.
3. Money is provided for tax.
4. You pay yourself a fixed, consistent amount.
5. You fund any other planned priorities, perhaps pension contributions, business-debt repayment or specific savings goals.
6. Whatever remains becomes overflow.

So:

Revenue − business expenses = profit

Then:

Profit − tax provision − owner’s pay − other planned financial goals = overflow

Overflow is not the same as profit.

Profit is an accounting measure of income minus allowable business expenses. Overflow is the part of the resulting cash that has not already been assigned to tax, paying you or another deliberate priority. The business can be profitable and still have very little freely available cash, because profit and spendable money are not interchangeable.

This is also why checking the bank balance is such a terrible decision-making system. The account might show £8,000, but £2,000 belongs to tax, £3,000 is next month’s owner’s pay, £1,500 is needed for operating costs and £500 has been promised to debt. The visible balance is £8,000. The overflow is £1,000.

Quite different holiday.

What is the Overflow Formula?

The Overflow Formula is the cashflow system I use to make those jobs visible and repeatable. It works alongside a simple cashflow tracker and a banking structure that separates the main operating money, tax and overflow.

In Episode 2, I explained why those jobs can live in three accounts or inside one banking app with separate pots. The accounts hold the money. The formula tells you how much belongs in each one.

My cashflow tracker was deliberately built on one tab. Not one spreadsheet containing eleven tabs, colour-coded dashboards and a tiny chart nobody looks at after the first week. One tab.

The point is to answer the decisions I actually need to make as a business owner:

• Can the business pay me?
• Are expenses covered?
• Is enough set aside for tax?
• What cash is expected next month?
• What remains once those commitments are funded?

Your bookkeeping software answers important accounting and compliance questions. The cashflow tracker answers what happens next.

You need both forms of information, but they are not doing the same job.

How do I calculate the amount my business needs?

Start with exact cash amounts.

Let’s say you need £3,000 a month in take-home pay, expect to provide £1,000 for tax and want the business to create £1,000 of overflow. Before adding any other operating costs, the business needs to generate £5,000.

£3,000 owner’s pay + £1,000 tax + £1,000 overflow = £5,000 required

If revenue reaches only £4,000, and that amount genuinely covers the £3,000 pay and £1,000 tax provision, the month has not necessarily failed. It has produced no new overflow, but the existing commitments were met.

Add £1,000 of monthly business expenses and the required revenue becomes £6,000.

Maths, babe. Maths.

Of course, the full calculation is more nuanced. Some operating costs may change with revenue, tax is based on the relevant profit and business structure, and the cash received this month may not match the sales made this month. But the planning logic remains the same: total the real jobs the money needs to do, then build the revenue goal around them.

Do not pick the revenue goal first and try to squeeze your life into whatever survives it.

Why not allocate everything by percentage?

Because your bills are not a percentage of your income. Your bills are your bills.

If your software, insurance and contractor commitments total £1,200 next month, they will not shrink to £720 because revenue arrived 40 per cent below target. If your personal life needs £2,500, paying yourself 30 per cent of a volatile revenue figure could create £3,000 one month and £900 the next.

Percentages are useful in specific places. Tax provision is often calculated using a percentage informed by expected liability, and profit margin is useful for measuring how efficiently the business operates. But using one neat ratio for every cash decision can hide the exact amount required.

This is where I differ from systems that begin with prescribed allocations. I want to know the bills, owner’s pay, tax and goals in pounds first. Then I can use percentages as a diagnostic, rather than asking a generic percentage to run the business.

You do not need 47.625 per cent in a pot. That is not helping anyone.

What is overflow actually for?

Overflow gives the business room to move.

For a seasonal photographer, strong summer revenue might need to carry some of the quieter winter. One photographer may diversify by teaching SEO during the off-season. Another may keep the same offer and intentionally build enough cash during busy months to cover the annual rhythm.

Neither business has necessarily become inconsistent or broken. Income can vary without being unpredictable, as long as you understand the pattern and fund it.

Overflow might be used to:

• cover operating costs and owner’s pay during lower-sales months;
• pay off business debt without emptying the account;
• fund a planned investment;
• increase pension contributions;
• take a longer period away from client work;
• pay for a lifestyle goal, such as the holiday we planned in Episode 5;
• or remain in the business as a larger safety reserve.

Savings are meant to be spent. Not carelessly, obviously, but deliberately. A savings pot without a purpose becomes money you are frightened to touch, even when the exact situation it was designed for arrives.

Is overflow an emergency fund?

It can perform part of that job, but I prefer naming savings according to what the money is meant to make possible.

You might have:

• overflow, to smooth business cashflow and fund planned business decisions;
• an emergency fund, for large, genuinely disruptive events;
• a Breathing Fund, for the smaller irregular costs that would otherwise return to credit;
• a freedom fund, giving you room to take time away or change direction;
• or a fuck-off fund, allowing you to say no to a client, contract or opportunity you do not want to remain dependent on.

Different labels create different decision rules. If the boiler breaks and you use the fund designed for household surprises, cool. That is what it is there for. If a quiet month arrives and the business draws from overflow to maintain owner’s pay, also cool. That is what it is there for.

Using savings is not evidence that the system failed. Sometimes it is evidence that the system worked.

How much overflow should I keep?

There is no universal number. Start with the business commitments you want the reserve to protect, then decide how many months you want covered.

If essential business expenses are £1,500 a month and your fixed owner’s pay is £2,500, protecting both for three months requires £12,000.

£1,500 expenses + £2,500 owner’s pay = £4,000 a month

£4,000 × 3 months = £12,000 safety number

You might begin with one month and build towards three or six. Your decision depends on revenue visibility, contract length, fixed overheads, other household income, upcoming investments and your tolerance for risk.

Do not borrow somebody else’s six-month rule without checking what six months means in your business. Six months of software is not the same as six months of the business continuing to pay you.

Does consistent income mean earning exactly the same every month?

No.

If somebody tells me they have made consistent £5k months for the last ten months, I do not expect ten identical £5,000 deposits. Their actual revenue might have ranged from £4,500 to just under £6,000 and averaged around £5,000.

Consistency is the business repeatedly producing within a useful range, with enough visibility and overflow to manage the movement. It is not revenue behaving like an employed salary before it reaches the cashflow system.

This distinction matters because people abandon working sales strategies when a month lands slightly below the headline number. I have done a version of this myself with weight loss. I thought the approach had stopped working, changed the strategy, then finally looked at the actual data and discovered it had been working the entire time, only more slowly than I perceived.

The feeling said nothing was happening. The trend said it was.

Business owners do the same thing with revenue. One £4,500 month after a £5,800 month can feel like decline, while the ten-month average shows a stable business. Without data, you react to the most emotionally available number.

Do I need to track every transaction?

You need enough accurate information to make the decisions, but that does not mean manually logging every coffee for eternity.

I have not tracked every personal transaction for years. Personally, I use an agreed joyful-spending amount and a separate spending card. Once that money has been transferred, I do not need to categorise every use of it because the important decision happened when I set the total.

The business gets a regular reconciliation. During the first week of the month, I go through the bank account and business credit card, then compare each transaction with the amounts in the tracker.

If the spreadsheet says £380 went to a brand designer, I check that £380 actually left. I look for renewals, unexpected charges and changes to recurring expenses. Then I update the forecast so the next decision is based on what is happening, not what I vaguely remember agreeing to three months ago.

You can use Xero, QuickBooks or FreeAgent for bookkeeping. I use FreeAgent. But I do not rely on bookkeeping software alone for my weekly cashflow decisions, because it was not built around the first question I needed answered when I left employment: can the business pay me on the 25th?

That is why the cashflow tracker exists.

How often should I update the tracker?

Reconcile it fully once a month, then check it often enough to stay ahead of decisions.

For a simple service business with stable expenses, a weekly glance at upcoming cash and commitments may be plenty. If you are launching, hiring, experiencing rapid sales movement or working with tight cashflow, you may need to update it more frequently for a while.

The tracker should reduce surprises. If maintaining it requires a three-hour ritual and ceremonial lighting, the system is too elaborate.

Most clients understand my tracker within one session because it is designed around actual questions rather than spreadsheet theatre. I have handed it to people with almost no context and they could see what it was showing them.

That matters more than whether it looks impressive on Etsy.

What if I buy a template and it does not work for my brain?

This is common. You buy a beautifully designed Notion finance system, open it twice, cannot work out which of the 14 databases contains the answer you need, then decide you are bad at financial admin.

Jesus Christ, what are you tracking? What are you tracking?

A generic template was built around somebody else’s brain, priorities and business model. That does not make the template bad, and it does not make you incapable. It means the friction between you and the system is higher than the value it returns.

Before choosing any tracker, define the decisions it needs to support. If your questions are about owner’s pay, tax, forecast cash and overflow, those answers should be immediately visible. You should not need to maintain a miniature enterprise resource-planning system to find them.

Use a tool because it answers your questions. Not because the Notion girlies made the dashboard look lovely.

Is this basically Profit First with a new name?

No.

I have read Profit First and tried the method. Its standard approach uses five bank accounts, percentage allocations and a process designed to ensure profit is reserved before the business spends everything available.

There are parts I agree with, particularly the insistence that profit should not be treated as a happy accident at year end. As I explained in Episode 2, my issue is the assumption that percentage allocations will reflect the actual jobs in every business, and the underlying message that money has to be hidden across multiple accounts because you cannot be trusted with it.

The Overflow Formula begins somewhere else:

• calculate the fixed owner’s pay your life requires;
• map the real business costs;
• make a suitable provision for tax;
• include the goals you are actively funding;
• then build the revenue strategy required to create overflow beyond them.

The behaviour is not “move a percentage before I can spend it.” It is “know what this money is for before I make a decision with it.”

Both systems care about keeping cash in the business. They are not the same system.

What if my accountant or bookkeeper uses something different?

Let them.

Your accountant needs records that support correct accounts and tax filings. Your bookkeeper may have a process that makes accurate categorisation easier. You need a cashflow view that helps you decide what the business can afford next.

Clients have taken the Overflow Formula to existing bookkeepers and financial professionals who use different systems, and the response has essentially been, “If it works for you, fine.”

It does not need to replace everything. It needs to connect the formal financial information with the decisions you are responsible for making.

If your current system already shows what you need, allows you to pay yourself consistently and helps you plan ahead, keep it. I am not coming to your house to confiscate a spreadsheet that works.

What if the numbers bring up shame or panic?

The spreadsheet can show a shortfall without declaring you a failure.

Perhaps you discover the business cannot currently fund your full owner’s pay. Maybe expenses are higher than you thought, or the overflow you believed was accumulating belongs to tax. Those numbers affect the next decision, but shame tends to turn them into evidence about who you are.

Then you avoid the tracker, lose visibility and make the following decision with even less information.

This is why financial strategy and behaviour cannot be completely separated. You need a system simple enough to use, and you need a way of noticing when the story in your head has started overruling the data in front of you.

In Episode 3, I shared the five-minute bank check-in I gave a client who felt she had fallen off the wagon. She did not need to fix everything that day. She needed enough contact with the numbers to make one useful decision.

Data is not punishment. It is what stops one difficult month becoming an invented story about the entire business.

The point of overflow is choice

Overflow means the business can experience a lower month without immediately reducing your pay. It means a planned investment can be funded without pretending tax money is spare. It means you can use the business to pay for a holiday, clear debt or take time away, because those decisions were built into the financial structure before the money left.

But overflow does not appear because you opened another pot. It is created commercially.

Your offer has to produce enough profit. Your pricing has to work at your real capacity. Your payment plans have to bring cash in at the right time. Your sales system has to generate the required revenue repeatedly.

The cashflow system keeps the money. The business strategy creates it.

Resources mentioned

• Profit First resources from Mike Michalowicz
• Xero accounting software
• QuickBooks UK
• FreeAgent accounting software
• Notion templates
• Business and revenue-planning resources

Continue listening

At the time I recorded this episode, I had not decided what Episode 7 would cover. Very organised content operation, obviously.

Money Mindset Will Not Fix What Money Management Keeps Reinforcing

Want to create overflow on purpose?

A tracker can show you that no money is left after expenses, tax and owner’s pay. It cannot fix the offer, pricing, capacity or sales rhythm causing the shortfall.

Inside Momentum, we work on both sides of the equation. We build the revenue strategy that produces enough cash, then the financial structure that turns that revenue into consistent take-home pay and growing overflow.

Apply for Momentum, and we’ll turn overflow from whatever happens to be left into a number the business is designed to create.