A quick guide to cash flow forecasting
In a glance:
The management of cash flow needn’t be complicated but it’s more than an occasional glance at your business bank account.
Controlling your cash flow allows you to profit from opportunities, such as purchasing a new asset, employing extra staff, utilising the discount.
Being timely paid is crucial to ensure the flow of cash, so don’t allow your debtors drag.
Attention: looking at your bank account every week isn’t forecasting your cash flow.
Small-scale business owners who are overwhelmed by the thought of creating an annual cash flow forecast often think that just a glance at their bank account will do the trick.
It’s essential for small business owners to understand that forecasting cash flow is very simple and, instead of complimenting things, can help make running your business easier and your chances of succeeding higher.
We’ve got the best advice for cash flow forecasting as a professional.
1. Learn about cash flow
In simple terms, cash flow is calculated using your transactions in and your payments out that you owe and have on hand in cash, less the amount you are owed.
The cash flow projection can provide you with the exact amount you have in the way of available liquid funds.
Your cash inflows will be predominantly comprised of sales, whereas your cash outs will also include costs such as rent, wage, taxes, utilities and supplier payments.
2. Learn why it’s important
If you have a grasp on your cash flow , you can run your business efficient and effectively.
Many small businesses carry stocks and must know how much stock they should keep available and whether they can purchase in bulk, for example.
If you’re not forecasting your cash flow properly, you won’t be able to manage your stock available or profit from opportunities when it comes your way - for instance, a price reduction on an order like that or the possibility to purchase a brand new asset.
A cash flow forecast may aid you in determining whether capital expenditures are feasible and is warranted at any point and assist in utilizing your funds to their fullest potential.
3. Be ready to grow
When you first start your business, the changes that come with growth might sneak into your life – for example, the change of being capable of keeping the firm running at a steady pace and then needing to keep watch on fluctuations in cash flow.
It’s crucial to think ahead. In the event that you’re not managing your cash flow, you could end up in a stock shortage and not be capable of purchasing. I’ve also witnessed corporate owners finance stock purchases on personal credit cards, which can be an expensive cycle that’s difficult to come out of.
Planning ahead is essential in the process of the accuracy of planning for cash flows.
Think about things like the demand for more staff or seasonal demand for stock. Also, don’t forget to think about tax obligations like the PAYE and GST. That’s one expense area that small companies get caught repeatedly.
4. Pay your bills with cash
It is suggested that small-scale business owners collect payments for invoices as soon as possible.
It is often difficult to recover a debt. Chase instalments that have not been paid promptly rather than letting them drag out.
Invoices that are not paid can affect your business, affecting anything including the ability to replenish stock, to having to reduce the budget for advertising and branding.
Find out what you’re owed by reviewing your forecast for cash flows on a regular basis - each week is ideal and once per month at a minimum. If you’re not certain of where things stand and how they’ll change, it’s impossible to make a proper think about what’s to come.
5. Are you stuck? Don’t be alone.
The majority of accounting software such as Xero and MYOB includes cash flow forecasting features that business owners can utilize. And while it is beneficial to keep business owners aware in their financial situation themselves There’s nothing wrong with making a monthly update alongside your accountant part of the process.
Small business owners are too busy – often their time can be better spent on other aspects of their businesses. Accounting experts can help organise their forecasting. Consult with your bank’s accounting professional or small-business loan provider to find solutions to small business growth issues prior to them becoming a problem. It’s best to seek help whenever you feel you’ll need it, rather instead of sticking your head in the sand, hoping the issues will go away.
It doesn’t require an accountant to create or oversee a budget for your cash flow. However, you must make it a frequent and consistent element of your business’s planning. When you’re in a time of uncertainty such as an outbreak in the world, it’s more important than ever for small-scale business owners to build resilience into their businesses and one of the more effective methods of doing this is by calculating cash flow forecasts.
