A quick guide to cash flow forecasting
In a glance:
The management of cash flow need not be difficult however, it takes more than a quick glance at your business’s bank account.
Getting a handle on cash flow enables you to benefit from lucrative opportunities. Think about buying an item that’s new, hiring extra staff, utilising discount.
When you pay on time, it is essential to maintain cash flow so don’t let your creditors slow you down.
Attention: looking at your bank account once a week isn’t cash flow forecasting.
Small-scale business owners overwhelmed by the thought of creating an annual cash flow forecast often convince themselves that just a glance at the bank account will accomplish the task.
It’s essential for small business owners to know that cash flow forecasting is easy to understand and, instead of complimenting things, can in making running your business more efficient and your chance at success higher.
Below are some of our best tips for cash flow forecasting as a professional.
1. Learn about cash flow
Put simply it’s a calculation of cash flow based on your payments in and your out which is what you owe and have in your account less what you have to pay.
An cash flow prediction will show you exactly how much you’ve got in terms of liquid funds available.
Your cash inflows will be mostly comprised of sales. Your payment out will cover expenses like rent, wages, taxes, utilities and supplier payments.
2. Be aware of the reasons why it’s important
If you are in control of your cash flow, you are able to run your business more efficiently and successfully.
Small businesses often have inventory and require what they need on hand and if they should purchase in bulk, like.
If you’re not forecasting your cash flow in a timely manner and accurately, you’ll not be able to control your inventory on hand or take advantage of an opportunity that comes your way - a discount on an order, for instance or the ability to buy a new item.
Forecasting cash flows will help you understand whether capital expenditure is feasible and is warranted at any point, and help use your funds to the maximum potential.
3. Be prepared for growth
As you begin your journey in business, the changes that come with growth can sometimes creep over you, including the transition of being capable of keeping the firm running at a steady pace and then needing to keep watch on fluctuations in cash flow.
It is essential to plan ahead. In the event that you haven’t managed your cash flow, you could run running out of stocks and be being able to buy. I’ve also witnessed corporate owners finance stock purchases using personal credit cards. This could be a costly cycle that’s difficult to break out of.
Planning is crucial when it comes to successful budgeting for the flow of cash.
Consider things like the potential need for extra staff, or the seasonal demand for stock. Be sure to take note of your tax obligations , including VAT and PAYE. This is an area where small companies get caught by time and time again.
4. Pay your bills with cash
It is suggested that small-scale business owners collect payments for invoices as soon as possible.
It can be difficult to get a payment that is not paid. Chase the invoices that are not paid immediately instead of letting them drag out.
Invoices that aren’t paid can sometimes have a serious impact on your business, impacting everything including the ability to replenish stocks, or cut back on the budget for advertising and branding.
Find out what you’re owed by reviewing the cash flow projection on a regular basis every week, once a month at minimum. If you don’t know the current situation, you can’t properly prepare for the future.
5. Are you stuck? Don’t be alone.
A majority of accounting software, such as Xero and MYOB has cash flow forecasting features that entrepreneurs can make use of. It’s recommended for business owners to be aware of their cash flow themselves, there’s nothing wrong with making a monthly update alongside your accountant as part of the process.
Small business owners are busy enough – sometimes their time can be better to be spent on other aspects of their business. Accountants can assist them in planning their forecasts. Speak to your bank’s accountant or small business loan provider to find solutions to small business growing pains prior to them becoming a problem. It’s better to seek assistance immediately if you think you’ll need it, rather than to bury your head in the sand, hoping the problems will go away.
It doesn’t require an accountant to develop or manage a Cash flow projection. However, you must make it a frequent and consistent part of your business planning. In uncertain times such as an epidemic that is spreading across the globe, it’s more important than ever for small-scale business owners to develop resilience into their companies and one of the more effective ways to do this is cash flow forecasting.
