A quick guide to cash-flow forecasting
In a glance:
The management of cash flow needn’t be complicated, but it requires more than a glance at your business’s bank account.
Being aware of your cash flow allows you to benefit from lucrative opportunities – think buying an asset that is new, hiring more staff, or utilizing a discount.
Paying on time is vital to keep cash flow , so don’t let your creditors drag.
A heads up: checking your bank account every week isn’t cash flow forecasting.
Small business owners who are overwhelmed by the idea of creating the cash flow forecast often think that just a glance at the bank account can do the trick.
It is crucial for small-scale entrepreneurs to be aware that cash flow forecasting is very simple and, rather than complicating things, it can in making running your business more efficient and your chances of being successful is higher.
These are the top suggestions to forecast cash flow like a pro.
1. Learn about cash flow
Simply put it’s a calculation of cash flow using your transactions into and out that you owe and have on hand and what you have on hand, less what you have to pay.
The cash flow projection can show you exactly how much you have in terms of liquid funds.
The money you pay in will mostly comprised of sales, while your payment out will cover expenses such as rent, wages, utilities, tax, and supplier payments.
2. Be aware of the reasons why it’s important
If you have a grasp on your cash flow , then you can manage your business more effectively and efficiently.
Many small-scale businesses have stocks and must know what they need available and whether they need to purchase in bulk, for instance.
If you’re not planning your cash flow in a timely manner then you’ll be unable to effectively manage your stocks on hand , or take advantage of a good opportunity when it comes your way - the possibility of a sale on an order for instance, or being able to buy a new item.
Forecasting cash flows can help you understand whether capital expenditures are feasible and warranted at any time, and help use your money to its fullest potential.
3. Be ready for the future
If you are just beginning your career in business it is possible that the changes that come from growth may sneak in on you. This includes the transition away from keeping your firm running at a steady pace and not needing to keep a close eye on fluctuating cash flow.
It’s crucial to think ahead. For instance, if you’ve not managed your cash flow, you may run out of stock and not being able to buy. I’ve also witnessed business owners finance stock purchases on personal credit cards, which could be a costly cycle that is difficult to break out of.
It is important to plan ahead in the process of successful cash flow forecasting.
Take into consideration things like the need for staffing, or the seasonal demand for stocks. Be sure to take note of your tax obligations like VAT and PAYE. This is one expense area that small businesses get caught out repeatedly.
4. Chase your payments
It is suggested that small-scale entrepreneurs collect their payments for invoices as soon as possible.
It is often difficult to get a payment that is not paid. Chase accounts that are unpaid immediately rather than waiting for them to accumulate.
Unpaid invoices can sometimes be a major problem for your business, affecting anything from the ability to replenish stocks to having to cut back on the budget for advertising and branding.
Be aware of what you owe by reviewing an annual cash flow plan on a regular basis - each week is ideal each month, or once at minimum. If you’re not aware of what’s happening then you’re not able to properly think about what’s to come.
5. Feeling stuck? Do not be on your own.
The majority of accounting software such as Xero and MYOB has the ability to forecast cash flow, which business owners can benefit from. And while it is beneficial to keep business owners on top the flow of cash There’s nothing wrong with doing a monthly update with your accountant as part of the process.
Small-scale business owners are often working enough and their time could be better used on other areas of the business and accountants can assist them in planning their forecasts. Speak to your bank’s accounting professional or small-business loan provider to find solutions to the growing issues of small businesses prior to them becoming a problem. It is better to seek help as soon as you think you might need it than to bury your head in the sand and hope the problems will go away.
There is no need to be an accountant to create or oversee the Cash flow projection. But , you should create it as a regular and consistent element of your business plan. In uncertain times such as a global pandemic is more crucial than ever before for small business owners to build resilient businesses. And one of the most powerful methods to achieve this is by calculating cash flow forecasts.
