A quick guide to cash-flow forecasting
At a glance:
Controlling cash flow need not be difficult, but it requires more than an occasional glance at your business’s bank account.
Being aware of cash flow enables you to make the most of opportunities. Think about buying new equipment, hiring extra staff, utilising the discount.
Paying on time is vital to keep cash flow . Don’t let your creditors get in the way.
A heads up: checking your bank account once a week doesn’t mean you’re forecasting cash flow.
Small business owners who are overwhelmed by the thought of preparing the cash flow forecast frequently believe that only a glance over the bank account can be enough to get the job done.
It is crucial for small-scale business owners to realize that cash flow forecasting is easy to understand and, rather than complicating things, can in making running your business more efficient and your chance at being successful is higher.
Below are some of our best tips for cash flow forecasting as a professional.
1. Be aware of the cash flow
In simple terms, cash flow is calculated based on your payments into and out which is what you owe and what you have in the bank in cash, less the amount you have to repay.
The cash flow projection will provide you with the exact amount you’ve got in terms of liquid funds.
Your inflows into your account will be mostly comprised of sales. However, your cash outs will also include costs like rent, wages, utilities, tax, and supplier payments.
2. Learn why it’s important
If you are in control on your cash flow , you can run your business effectively and efficiently.
Many small businesses carry inventory and require what they need on hand and if they should purchase in bulk, as an example.
If you’re not planning your cash flow accurately then you’ll be unable to manage your stock on hand or profit from a good opportunity when it occurs – like for instance, a price reduction on an order like that or the ability to purchase a new asset.
The cash flow outlook will help you understand the possibility of capital expenditure and is warranted at any point, and help use your funds to their fullest potential.
3. Be prepared to expand
If you are just beginning your career in business it is possible that the changes that come as growth are often able to creep over you, including the shift between being in a position to maintain your business running without much effort, to needing to keep an eye on changing cash flow.
It is essential to plan ahead. If, for instance, you’ve not managed your cash flow, you might end up out of stock and not being able to buy. I’ve also seen corporate owners finance stock purchases using personal credit cards, which could be a costly cycle that’s difficult to get out of.
Pre-planning is also important when it comes to the accuracy of financial forecasting.
Think about things like the requirement for additional staff, or seasonal need for stock. Also, don’t forget to think about tax obligations including VAT and PAYE. This is one expense area that small-sized businesses are caught repeatedly.
4. You can use the Chase option to make your payments
It is advised that small businesses collect the payment for invoices as quickly as they can.
It isn’t easy to recover an outstanding payment. Chase accounts that are unpaid immediately instead of letting them drag out.
Unpaid invoices can sometimes affect your business, affecting anything including the ability to replenish stock, to having to reduce the budget for advertising and branding.
Be aware of what you owe by reviewing your cash flow forecast frequently every week and once per month at the very least. If you’re not aware of the current situation then you’re not able to properly prepare for the future.
5. Feeling stuck? Don’t go it alone.
A majority of accounting software, such as Xero and MYOB has the ability to forecast cash flow, which entrepreneurs can make use of. Although it’s an excellent idea for business owners to stay at the top of their cash flow There’s nothing wrong with having a monthly report with your accountant part of the process.
Small-scale business owners are often too busy – often their time could be better to be spent on other aspects of their businesses. Accounting experts can help organise their forecasting. Contact your bank’s accountant or business loan provider for help with problems with growing a small business before they become a problem. It’s better to get help when you realize you’ll need it, rather instead of sticking your head in the sand and pray that the issues will go away.
You don’t need to be an accountant to prepare or manage the financial forecast for cash flows. But you do need to ensure it is a regular and consistent element of your business’s plan. In times of uncertainty, such as an outbreak in the world is more crucial than ever for small business owners to develop resilience into their companies and one of the more effective methods to achieve this is to forecast cash flow.
