A step by step guide to cash-flow forecasting

In a glance:

Managing cash flow shouldn’t be complicated however it’s more than an occasional glance at your business bank account.

Being aware of cash flow enables you to benefit from lucrative opportunities. Think about buying new equipment, hiring more staff, or utilizing discounts.

Paying on time is critical to maintaining cash flow . Don’t let your creditors hold you back.

A heads up: checking your bank account at least once a week doesn’t mean you’re forecasting cash flow.

Small business owners overwhelmed with the idea of creating the cash flow forecast typically believe that only a glance over the bank account can do the trick.

It’s important for small business owners to realize that cash flow forecasting is quite straightforward and, rather than complicating things, can help to make managing your business simpler and your odds of success greater.

Here are our top tips to forecast cash flow like a pro.

1. Be aware of the cash flow

Put simply it’s a calculation of cash flow by calculating your cash flow based on the amount you pay out and in - what you are owed and what you have in the bank in cash, less the amount you have to repay.

An cash flow prediction can reveal exactly how much you’ve got in terms of liquid funds.

The money you pay in will predominantly comprised of sales. Your payment out will cover expenses like rent, wages, tax and utilities as well as supplier payments.

2. Be aware of the reasons why it’s important

If you can keep a grip of your cash flow, you can manage your business more efficiently and successfully.

A lot of small-scale businesses keep stock and need to know how much stock they should keep in their inventory and whether they should buy in bulk, as an example.

If you’re not forecasting your cash flow accurately and accurately, you’ll not be able to effectively manage your stocks available or profit from an opportunity that comes your way - discounts on orders such as, for example or the possibility to buy a new item.

Forecasting cash flows will provide you with an understanding of the possibility of capital expenditure and warranted at any moment and assist in utilizing your funds to their greatest potential.

3. Be ready for growth

As you begin your journey in business it is possible that the changes that come from growth may sneak up on you – including the change of being capable of keeping your business ticking over simply while keeping watch on fluctuations in cash flow.

It’s essential to prepare ahead. For instance, if you’ve not managed your cash flow, you might end up running out of stocks and be capable of purchasing. I’ve also witnessed corporate owners finance stock purchases using personal credit cards. This can be an expensive cycle that’s hard to get out of.

Planning is crucial in the process of successful budgeting for the flow of cash.

Take into consideration things like the need for extra staff, or the seasonal demand for stock. Don’t forget about your tax obligations like PAYE and GST – that’s one area of expense that small businesses get caught out every now and again.

4. Make sure you are able to track your payments

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

It can be very difficult to get a payment that is not paid. Chase unpaid invoices immediately rather than let them linger.

Invoices that aren’t paid can sometimes affect your business, impacting everything from replenishing stocks, to having to cut back on your branding or advertising budget.

Find out what you’re owed by checking in with an annual cash flow plan regularly Every week is ideal and once per month at the very least. If you don’t know the current situation, you can’t properly plan for what’s ahead.

5. Do you feel stuck? Don’t be alone.

Most accounting software like Xero and MYOB includes the capability of forecasting cash flow that business owners can utilize. And while it is an excellent idea for business owners to be on top of their cash flow, there’s nothing wrong with making a monthly update alongside your accountant part of the process.

Small-scale business owners are often too busy – often their time could be better used on other areas of the business and accountants can assist with their forecasting. Talk to your bank accounting professional or small-business loan provider for help with small business growth issues before they become a problem. It’s better to seek assistance when you realize you’ll 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 create or manage the Cash flow projection. However, it is important to create it as a regular and consistent part of your business plan. In times of uncertainty, such as the global pandemic and a global pandemic, it’s more essential than ever for small business owners to develop resilient businesses. And one of the more powerful methods to achieve this is cash flow forecasting.