A step by step guide to cash-flow forecasting

A quick glance:

Cash flow management needn’t be difficult however it’s more than an occasional glance at your company’s bank account.

Being aware of the flow of cash lets you take advantage of valuable opportunities, such as purchasing an asset that is new, hiring more staff, or utilizing the discount.

Getting paid on time is essential to maintain the flow of cash, so don’t allow your debtors hold you back.

Heads up: looking at your bank account at least once a week isn’t forecasting your cash flow.

Small business owners who are overwhelmed by the thought of creating the cash flow forecast typically believe that a quick glance at the bank account will be enough to get the job done.

It is crucial for small-scale entrepreneurs to be aware the importance of cash flow forecasting. It’s very simple and, rather than complicating things, it can make running your business easier and the chances of success greater.

These are the top recommendations for cash flow forecasting like a pro.

1. Learn about cash flow

Put simply it’s a calculation of cash flow according to your payment into and out that you owe and what you have in the bank less what you have to pay.

A cash flow forecast will reveal exactly how much you have in the way of liquid funds available.

Your inflows into your account will be mostly comprised of sales. Your payments out will include expenses like rent, wages, taxes, utilities and supplier payments.

2. Be aware of the reasons why it’s important

If you can keep a grip on your cash flow , you can manage your business more efficiently and profitably.

Small businesses often have stocks, and they need to know how much stock they should keep in their inventory and whether they can purchase in bulk, for example.

If you’re not planning your cash flow correctly, you won’t be able to control your inventory on hand , or get the most out of a good opportunity when it occurs – like discounts on orders for instance or the ability to purchase a brand new asset.

Forecasting cash flows could aid you in determining the possibility of capital expenditure and warranted at any moment, and help use your funds to their fullest potential.

3. Be ready for the future

When you first start your business and grow, the changes that come with growth can sometimes creep in on you. This includes the shift away from keeping the business ticking over simply and then needing to keep watch on fluctuations in cash flow.

It’s critical to plan ahead. For example, if you’ve not managed your cash flow, you might find yourself out of stock and in a position to purchase. I’ve also seen people who finance their stock purchases on personal credit cards, which can be a costly cycle that’s very difficult to get out of.

Planning is crucial in the process of the accuracy of planning for cash flows.

Take into consideration things like the demand for more staff or seasonal demand for stock. Don’t forget about your taxes, which include VAT and PAYE. This is one expense area that small-sized companies are caught every now and again.

4. You can use the Chase option to make your payments

It is recommended that small-scale businesses collect the payment for invoices as soon as they are able to.

It can be very difficult to recover a debt. Chase instalments that have not been paid promptly instead of waiting for them to accumulate.

Invoices that aren’t paid can sometimes affect your business, affecting everything from the ability to replenish stocks, to having to reduce your branding or advertising budget.

Know what you’re owed by reviewing your cash flow forecast on a regular basis - each week is ideal, once a month at the very least. If you’re not sure the current situation then you’re not able to properly plan for what’s ahead.

5. Feeling stuck? Don’t try to solve it on your own.

Most accounting software like Xero and MYOB has the capability of forecasting cash flow that business owners can utilize. While it’s a good idea for business owners to be on top the flow of cash, there’s nothing wrong with having a monthly report with your accountant part of the process.

Small business owners are busy enough – sometimes their time could be better focused on other aspects of their business. Accountants can assist with their forecasting. Talk to your bank accountant or small business lender for help with small business growth issues before they become a problem. It’s best to seek help immediately if you think you may need it rather instead of burying your heads in the sand hoping the issues will go away.

There is no need to be an accountant to create or oversee a budget for your cash flow. However, it is important to ensure it is a regular and regular part of your business plan. In times of uncertainty, such as the global pandemic, it’s more important than ever for small-scale business owners to incorporate resilience into their businesses and one of the most powerful methods to achieve this is by calculating cash flow forecasts.