A quick guide to cash flow forecasting
In a glance:
Managing cash flow does not have to be difficult, but it requires more than just a few glances at your bank account for business.
A good understanding of cash flow enables you to profit from opportunities such as buying new equipment, hiring additional employees, or making use of a discount.
Paying on time is crucial to ensure cash flow , so don’t let your creditors get in the way.
Heads up: looking at your bank account every week isn’t forecasting your cash flow.
Small-scale business owners who are overwhelmed by the idea of creating the cash flow forecast typically believe that only a glance over the bank account can do the trick.
It’s crucial for small entrepreneurs to be aware that cash flow forecasting is very simple and, instead of complimenting things, it can simplify running your business and the chances of success greater.
Here are our top suggestions to forecast cash flow as a professional.
1. Be aware of the cash flow
Simply put, cash flow is calculated based on your payments out and in that you owe and have in cash and what you have on hand, less what you are owed.
The cash flow projection will reveal exactly how much you’ve got in the form of liquid funds.
The money you pay in will mostly comprised of sales. However, your payment out will cover expenses such as rent, wage, taxes, utilities and supplier payments.
2. Know why it matters
If you have a grasp of your cash flow, you can run your business effectively and efficiently.
A lot of small-scale businesses keep stock and need to know what they need in their inventory and whether they need to purchase in bulk, like.
If you’re not planning your cash flow properly and accurately, you’ll not be able to manage your stock available or make the most of an opportunity that is available - discounts on orders such as, for example or being able to buy a new asset.
The cash flow outlook can assist you in understanding the possibility of capital expenditure and warranted at any time, and help use your funds to the maximum potential.
3. Be prepared to expand
When you start out in business it is possible that the changes that come with growth can sometimes creep up on you – including the change from being able to keep your company running smoothly and then needing to keep watch on fluctuations in cash flow.
It is essential to plan ahead. In the event that you’ve not managed your cash flow, you may find yourself out of stock and being able to buy. I’ve also witnessed corporate owners finance stock purchases on personal credit cards, which can result in a high-cost cycle that’s very difficult to get out of.
Planning ahead is essential for the accuracy of cash flow forecasting.
Be aware of things like the demand for more staff or the seasonal demand for inventory. Be sure to take note of your tax obligations , including the PAYE and GST. That’s one expense area that small companies get caught every now and again.
4. Chase your payments
It is suggested that small-scale entrepreneurs collect their payments for invoices as quickly as they can.
It can be very difficult to get back a late payment. Chase the invoices that are not paid immediately instead of waiting for them to accumulate.
Invoices not paid may be a major problem for your business, and can affect everything from your ability to replenish stocks to having to reduce the advertising budget or branding.
Be aware of what you owe by checking in with your cash flow forecast every week every week, once a month at the very least. If you’re not sure where you stand and how they’ll change, it’s impossible to make a proper prepare for what’s coming up.
5. Do you feel stuck? Don’t try to solve it on your own.
A majority of accounting software, such as Xero and MYOB has cash flow forecasting capabilities that entrepreneurs can make use of. It’s an excellent idea to keep business owners in control in their financial situation but there’s nothing wrong with making a monthly update alongside your accountant part of the process.
Small business owners are working enough and their time should be to be spent on other aspects of the business and accountants can assist them in planning their forecasts. Contact your bank’s accounting professional or small-business loan provider to get help addressing small business growing pains prior to them becoming a problem. It’s better to get help as soon as you think you might need it instead of sticking your head in the sand hoping the issues will go away.
It doesn’t require an accountant in order to make or oversee a financial forecast for cash flows. But , you should create it as a regular and regular part of your business’s planning. During uncertain times like an outbreak in the world and a global pandemic, it’s more essential than ever before for small entrepreneurs to instill resilience into their companies and one of the most effective methods to achieve this is through cash flow forecasting.