A quick guide to cash-flow forecasting
At a glance:
Managing cash flow shouldn’t be complicated but it’s more than a glance at your business bank account.
Being aware of the flow of cash allows you to make the most of opportunities. Think about buying a new asset, employing extra staff, utilising discounts.
When you pay on time, it is crucial to ensure cash flow . Don’t let your debtors drag.
Attention: looking at your bank account at least once a week isn’t cash flow forecasting.
Small-scale business owners overwhelmed by the idea of making an annual cash flow forecast often convince themselves that a quick glance at the bank account will do the trick.
It’s important for small business owners to know that forecasting cash flow is very simple and, instead of complimenting things, can help in making running your business more efficient and your odds of success greater.
Below are some of our best suggestions for cash flow forecasting as a professional.
1. Be aware of the cash flow
Simply put the cash flow calculation is using your transactions in and your payments out and what you are owed and what you have in the bank and what you have on hand, less what you are owed.
A cash flow forecast will give you an exact estimate of how much you’ve got in terms of liquid funds.
Your payments in will be predominantly comprised of sales, whereas your payment out will cover expenses like wages, rent and taxes, utilities and supplier payments.
2. Be aware of the reasons why it’s important
If you can keep a grip on your cash flow you can run your business efficiently and successfully.
Many small-scale businesses have stock and need to know what they need in their inventory and if they should purchase in bulk, as an example.
If you’re not forecasting your cash flow properly it will be difficult to control your inventory on hand , or take advantage of a good opportunity when it comes your way - the possibility of a sale on an order like that or the possibility to buy a new asset.
A cash flow forecast can assist you in understanding the possibility of capital expenditure and warranted at any time and also help you use your funds to the maximum potential.
3. Be prepared to expand
When you start out in business you will notice that the changes as growth are often able to creep over you, including the change of being capable of keeping your business ticking over simply, to needing to keep an eye on changing cash flow.
It’s essential to prepare ahead. If, for instance, you don’t manage your cash flow, you could be out of stock and not able to purchase. I’ve also witnessed businesses finance stock purchases on personal credit cards. This can be an expensive cycle that’s hard to escape from.
Pre-planning is also important for successful financial forecasting.
Think about things like the need for extra staff, or the seasonal need for stock. Don’t forget about your taxes, which include PAYE and GST – that’s an area where small companies get caught repeatedly.
4. You can use the Chase option to make your payments
It is advised that small entrepreneurs collect their payments for invoices as fast as they can.
It can be difficult to recover a debt. Chase instalments that have not been paid promptly instead of letting them drag out.
Unpaid invoices can sometimes cause serious problems for your business, and can affect everything from your ability to replenish stock, to having to reduce your advertising or branding budget.
Be aware of what you owe by reviewing an annual cash flow plan frequently every week and once per month at minimum. If you’re not aware of where things stand then you’re not able to properly think about what’s to come.
5. Feeling stuck? Don’t go it alone.
A majority of accounting software, such as Xero and MYOB provides cash flow forecasting features that business owners can utilize. It’s recommended for business owners to be aware of their cash flow themselves but there’s nothing wrong with doing a monthly update with your accountant in the process.
Small-scale business owners are often busy enough – sometimes their time could be better spent on other aspects of their businesses. Accounting experts can assist in organising their forecasts. Consult with your bank’s accountant or business loan provider for help with the growing issues of small businesses before they become an issue. It is better to seek help whenever you feel that you’ll require it instead of burying your heads in the sand and hope your problems will disappear.
You don’t have to be an accountant in order to make or oversee a financial forecast for cash flows. However, you must make it a regular and consistent part of your business’s planning. In times of uncertainty, such as an outbreak in the world, it’s more important than ever for small business owners to develop resilience into their businesses and one of the more powerful methods of doing this is cash flow forecasting.
