A quick guide to cash-flow forecasting
A quick glance:
Controlling cash flow need not be complicated however it’s more than just a few glances at your business bank account.
Being aware of the flow of cash lets you take advantage of valuable opportunities. Think about buying an asset that is new, hiring additional employees, or making use of discounts.
Being timely paid is critical to maintaining cash flow . Don’t let your creditors drag.
Beware: checking your bank account at least once a week doesn’t mean you’re forecasting cash flow.
Small-scale business owners who are overwhelmed by the thought of creating an annual cash flow forecast frequently believe that just a glance at the bank account can be enough to get the job done.
It’s important for small business owners to realize that cash flow forecasting is simple and, instead of complimenting things, can help make running your business easier and your odds of succeeding higher.
We’ve got the best tips for cash flow forecasting as a professional.
1. Understand what cash flow is
In simple terms it’s a calculation of cash flow using your transactions in and your payments out - what you are owed and have in your account, less what you have to repay.
The cash flow projection can 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. However, your payment out will cover expenses such as rent, wage, taxes, as well as supplier payments.
2. Be aware of the reasons why it’s important
If you are in control on your cash flow , you can run your business efficient and effectively.
Many small-scale businesses have stock and need to know how much they should have on hand and whether they can purchase in bulk, for instance.
If you’re not forecasting your cash flow accurately it will be difficult to manage your stock on hand or get the most out of a good opportunity when it occurs – like the possibility of a sale on an order like that or being able to purchase a new asset.
The cash flow outlook will aid you in determining the possibility of capital expenditure and warranted at any time, and help use your funds to the maximum potential.
3. Be ready for the future
As you begin your journey in business, the changes that come with growth might sneak up on you – including the shift of being capable of keeping the business running without much effort and not needing to keep an eye on changing cash flow.
It’s crucial to think ahead. If, for instance, you’ve not managed your cash flow, you could end up running out of stocks and be in a position to purchase. I’ve also seen businesses finance purchase of stocks using personal credit cards. This can be an expensive cycle that is difficult to get out of.
Planning is crucial when it comes to the accuracy of financial forecasting.
Think about things like the need for extra staff, or the seasonal demand for stock. Don’t forget about your tax obligations , including the PAYE and GST. That’s one expense area that small companies get caught often and repeatedly.
4. Pay your bills with cash
It is suggested that small-scale entrepreneurs collect their payments for invoices as soon as possible.
It can be very difficult to get back a late payment. Chase the invoices that are not paid immediately rather than letting them drag out.
Unpaid invoices can sometimes be a major problem for your business, and can affect everything including the ability to replenish stocks, to having to reduce the budget for advertising and branding.
Be aware of what you owe by checking the cash flow projection every week every week each month, or once at minimum. If you’re not sure where things stand then you’re not able to properly plan for what’s ahead.
5. Do you feel stuck? Do not be on your own.
Most accounting software like Xero and MYOB offers cash flow forecasting features that entrepreneurs can make use of. Although it’s beneficial for business owners to be aware the flow of cash themselves but there’s nothing wrong with making a monthly update alongside your accountant as part of the process.
Small-scale business owners are often too busy – often their time could be better used on other areas of their business. Accountants can help organise their forecasting. Contact your bank’s accounting professional or small-business loan provider for help with small business growth issues before they become an issue. It is better to seek help when you realize that you’ll require it instead of sticking your head in the sand, hoping your problems will disappear.
It doesn’t require an accountant to prepare or manage an accurate Cash flow projection. However, it is important to make it a regular and consistent part of your business’s planning. In times of uncertainty, such as an epidemic that is spreading across the globe and a global pandemic, it’s more essential than ever before for small business owners to incorporate resilience into their business and among the most effective ways to do this is by calculating cash flow forecasts.
