A quick guide to cash flow forecasting
At a glance:
Controlling cash flow needn’t be complicated but it’s more than just a few glances at your company’s bank account.
A good understanding of your cash flow allows you to take advantage of valuable opportunities. Think about buying new equipment, hiring additional employees, or making use of a discount.
When you pay on time, it is vital to keep cash flow . Don’t let your debtors slow you down.
A heads up: checking your bank accounts once a week isn’t cash flow forecasting.
Small-scale business owners who are overwhelmed by the thought of creating a cash flow forecast will typically believe that a quick glance at the bank account will be enough to get the job done.
It’s important for small business owners to understand the importance of cash flow forecasting. It’s quite straightforward and, instead of complimenting things, can to make managing your business simpler and your chances of succeeding higher.
Here are our top suggestions for cash flow forecasting like a pro.
1. Know what cash flow is.
Put simply, cash flow is calculated using your transactions in and your out and what you are owed and have in cash in cash, less the amount you are owed.
The cash flow projection will provide you with the exact amount you’ve got in the form of liquid funds.
Your cash inflows will be mostly made up of sales, while 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 of your cash flow, you can manage your business more efficiently and profitably.
Many small-scale businesses have stock and need to know how much stock they should keep in stock and whether they can purchase in bulk, like.
If you’re not forecasting your cash flow properly, you won’t be able to effectively manage your stocks on hand or make the most of a good opportunity when it is available - discounts on orders like that or being able to purchase a new asset.
The cash flow outlook can help you understand the possibility of capital expenditure and warranted at any moment, and help use your funds to their fullest potential.
3. Be prepared for the future
If you are just beginning your career in business, the changes that come as growth are often able to creep up on you – including the change from being able to keep the business running without much effort, to needing to keep a close eye on fluctuating cash flow.
It is essential to plan ahead. For example, if you haven’t managed your cash flow you can be out of stock and not capable of purchasing. I’ve also seen business owners finance stock purchases on personal credit cards, which can be an expensive cycle that is difficult to come out of.
It is important to plan ahead in the process of accurate cash flow forecasting.
Consider things like the potential demand for more staff or seasonal need for stock. Be sure to take note of your taxes, which include VAT and PAYE. This is one expense area that small businesses get caught out often and repeatedly.
4. Make sure you are able to track your payments
It is recommended that small-scale businesses collect the payment for invoices as fast as they can.
It isn’t easy to get back a late payment. Chase accounts that are unpaid immediately rather than waiting for them to accumulate.
Invoices that are not paid can cause serious problems for your business, and can affect everything including the ability to replenish stocks to having to cut back on the budget for advertising and branding.
Know what you’re owed by reviewing an annual cash flow plan regularly Each week is the ideal, once a month at the very least. If you don’t know what’s happening it’s difficult to prepare for the future.
5. Are you feeling stuck? Don’t go it alone.
Most accounting software like Xero and MYOB offers cash flow forecasting capabilities that entrepreneurs can make use of. It’s beneficial to keep business owners at the top in their financial situation but there’s nothing wrong with making a monthly update alongside your accountant as part of the process.
Small business owners are working enough and their time can be better focused on other aspects of the business and accountants can help organise their forecasting. Contact your bank’s accountant or business loan provider to find solutions to problems with growing a small business prior to them becoming a problem. It is better to seek help immediately if you think that you’ll require it instead of burying your heads in the sand, hoping the issues will go away.
There is no need to be an accountant to prepare or manage the cash flow forecast. However, you must make it a regular and consistent element of your business planning. In times of uncertainty, such as the global pandemic that is now more critical than ever before for small business owners to incorporate resilience into their business and one of the more powerful methods to achieve this is to forecast cash flow.
