A quick guide to cash-flow forecasting

In a glance:

Managing cash flow shouldn’t be difficult but it’s more than a glance at your company’s bank account.

Being aware of the flow of cash allows you to take advantage of valuable opportunities. Think about buying new equipment, hiring additional staff, or taking advantage of discount.

When you pay on time, it is critical to maintaining cash flow . Don’t let your debtors get in the way.

Beware: checking your bank account every week doesn’t mean you’re forecasting cash flow.

Small-scale business owners overwhelmed by the thought of preparing the cash flow forecast frequently believe that just a glance at the bank account can suffice.

It’s important for small business owners to realize that forecasting cash flow is easy to understand and, rather than complicating things, can simplify running your business and your chances of succeeding higher.

Here are our top recommendations for forecasting cash flow like a pro.

1. Understand what cash flow is

In simple terms the cash flow calculation is by calculating your cash flow based on the amount you pay in and your payments out that you owe and have in your account and what you have on hand, less what you have to repay.

The cash flow projection can show you exactly how much you’ve got in terms of available liquid funds.

Your payments in will be mostly made up of sales, while your payment out will cover expenses like wages, rent and utilities, tax, and supplier payments.

2. Know why it matters

If you are in control on your cash flow , then you can run your business more effectively and efficiently.

A lot of small-scale businesses keep stocks, and they need to know how much stock they should keep available and whether they should buy 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 an opportunity that occurs – like discounts on orders, for instance, or being able to buy a new asset.

Forecasting cash flows can provide you with an understanding of whether capital expenditure is possible and warranted at any moment and assist in utilizing your money to its fullest potential.

3. Be ready for growth

When you start out in business and grow, the changes that come with growth might sneak in on you. This includes the transition from being able to keep the company running smoothly and then needing to keep watch on fluctuations in cash flow.

It’s essential to prepare ahead. For example, if you haven’t managed your cash flow, you could find yourself out of stock and not in a position to purchase. I’ve also seen business owners finance purchase of stocks using personal credit cards, which can be an expensive cycle that’s hard to break out of.

It is important to plan ahead in the process of accurate budgeting for the flow of cash.

Be aware of things like the need for extra staff, or the seasonal demand for stocks. Be sure to take note of your tax obligations , including VAT and PAYE. This is one of the areas where small-sized companies are caught every now and again.

4. Pay your bills with cash

It is suggested that small-scale entrepreneurs collect their payments for invoices as soon as they are able to.

It is often difficult to recover a debt. Chase instalments that have not been paid promptly instead of letting them drag out.

Invoices that are not paid can cause serious problems for your business, affecting anything from your ability to replenish stock, to having to cut back on the budget for advertising and branding.

Find out what you’re owed by checking the cash flow projection frequently Each week is the ideal each month, or once at minimum. If you don’t know what’s happening and how they’ll change, it’s impossible to make a proper think about what’s to come.

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

Many accounting programs like Xero and MYOB includes the capability of forecasting cash flow that business owners can use. Although it’s recommended to keep business owners at the top in their financial situation themselves but there’s nothing wrong with doing a monthly update with your accountant in the process.

Small business owners are too busy – often their time should be used on other areas of the business and accountants can help organise their forecasting. Speak to your bank’s accountant or small business lender for help with small business growing pains before they become a problem. It’s better to get help as soon as you think you might need it instead of sticking your head in the sand and hope the issues will go away.

You don’t have to be an accountant to develop or oversee an accurate Cash flow projection. However, it is important to make it a frequent and consistent element of your business planning. During uncertain times like a global pandemic and a global pandemic, it’s more essential than ever before for small business owners to build resilience into their companies and One of the most powerful methods to achieve this is by calculating cash flow forecasts.