A step by step guide to cash flow forecasting
At a glance:
Cash flow management doesn’t have to be difficult however, it takes more than an occasional glance at your company’s bank account.
A good understanding of cash flow enables you to make the most of opportunities, such as purchasing new equipment, hiring extra staff, utilising the discount.
When you pay on time, it is vital to keep cash flow , so don’t let your debtors hold you back.
Heads up: looking at your bank accounts once a week isn’t a way to forecast your cash flow.
Small-scale business owners who are overwhelmed by the idea of creating an annual cash flow forecast frequently believe that just a glance at the bank account will suffice.
It’s crucial for small entrepreneurs to be aware that cash flow forecasting is simple and, rather than complicating things, can help in making running your business more efficient and your chances of succeeding higher.
These are the top advice for cash flow forecasting like a pro.
1. Be aware of the cash flow
In simple terms it is according to your payment into and out and what you are owed and have on hand in cash, less the amount you have to repay.
An cash flow prediction will provide you with the exact amount you’ve got in the form of liquid funds.
Your inflows into your account will be mostly made up of sales, whereas your payment out will cover expenses like wages, rent and taxes, utilities and supplier payments.
2. Know why it matters
If you are in control on your cash flow you can run your business efficiently and successfully.
Small businesses often have inventory and require how much they should have available and whether they should buy in bulk, for example.
If you’re not planning your cash flow accurately it will be difficult to effectively manage your stocks on hand or make the most of opportunities when it occurs – like a discount on an order like that, or being able to purchase a brand new asset.
The cash flow outlook can assist you in understanding whether capital expenditure is possible and is warranted at any time and also help you use your funds to their greatest potential.
3. Be ready for growth
As you begin your journey in business, the changes that come with growth might sneak into your life – for example, the change between being in a position to maintain your business ticking over simply and not needing to keep watch on fluctuations in cash flow.
It’s critical to plan ahead. For instance, if you don’t manage your cash flow, you might run out of stock and not capable of purchasing. I’ve also witnessed business owners finance purchase of stock using personal credit cards, which could be a costly cycle that’s very difficult to get out of.
Planning is crucial when it comes to effective budgeting for the flow of cash.
Think about things like the requirement for additional staff, or seasonal demand for stocks. Don’t forget about your tax obligations , including PAYE and GST – that’s one area of expense that small businesses get caught out by time and time again.
4. You can use the Chase option to make your payments
It is advised that small entrepreneurs collect their payments for invoices as quickly as they can.
It is often difficult to get back a late payment. Chase unpaid invoices immediately rather than taking them off.
Invoices that aren’t paid can sometimes have a serious impact on your business, impacting everything including the ability to replenish stocks to having to reduce the advertising budget or branding.
Make sure you know what you’re due by checking an annual cash flow plan on a regular basis every week every month, at the very least. If you don’t know what’s happening and how they’ll change, it’s impossible to make a proper prepare for the future.
5. Are you stuck? Do not be on your own.
Most accounting software like Xero and MYOB has cash flow forecasting capabilities that entrepreneurs can make use of. While it’s a good idea to keep business owners aware on their money flow it’s not a bad idea to consider having a monthly report with your accountant in the process.
Small-scale business owners are often working enough and their time should be used on other areas of their businesses. Accounting experts can help organise their forecasting. Consult with your bank’s accountant or small business loan provider for assistance in tackling small business growth issues prior to them becoming a problem. It’s better to get help when you realize you may need it rather than to bury your head in the sand and pray that the issues will go away.
It doesn’t require an accountant to prepare or oversee an accurate budget for your cash flow. However, it is important to ensure it is a regular and consistent part of your business’s plan. In times of uncertainty, such as an outbreak in the world that is now more critical than ever for small-scale business owners to incorporate resilient businesses. And one of the most effective ways to do that is to forecast cash flow.
