A step by step guide to cash-flow forecasting

A quick glance:

The management of cash flow shouldn’t be complicated however it’s more than a glance at your business’s bank account.

Controlling cash flow enables you to benefit from lucrative opportunities, such as purchasing new equipment, hiring extra staff, utilising discount.

Getting paid on time is vital to keep the flow of cash, so don’t allow your creditors slow you down.

Beware: checking your bank accounts once a week doesn’t mean you’re forecasting cash flow.

Small business owners who are overwhelmed by the idea of making an annual cash flow forecast typically believe that only a glance over the bank account will do the trick.

It’s essential for small entrepreneurs to be aware the importance of cash flow forecasting. It’s quite straightforward and, rather than complicating things, it can to make managing your business simpler and your chance at success greater.

We’ve got the best tips for cash flow forecasting as a professional.

1. Be aware of the cash flow

Put simply, cash flow is calculated using your transactions into and out that you owe and what you have in the bank, less what you are owed.

A cash flow forecast can provide you with the exact amount you have in terms of liquid funds.

Your inflows into your account will be mostly made up of sales. 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 on your cash flow you can run your business efficiently and successfully.

A lot of small-scale businesses keep stocks and must know what they need available and if they should purchase in bulk, as an example.

If you’re not planning your cash flow correctly and accurately, you’ll not be able to manage your stock on hand , or get the most out of an opportunity that arrives – such as for instance, a price reduction on an order for instance or the possibility to purchase a new asset.

The cash flow outlook can assist you in understanding whether capital expenditure is feasible and warranted at any moment and also help you use your funds to their greatest potential.

3. Be ready for the future

As you begin your journey in business and grow, the changes that come as growth are often able to creep in on you. This includes the change between being in a position to maintain the firm running at a steady pace and not needing to keep a close eye on fluctuating cash flow.

It is essential to plan ahead. If, for instance, you don’t manage your cash flow, you could end up out of stock and able to purchase. I’ve also witnessed businesses finance purchase of stock using personal credit cards. This can result in a high-cost cycle that’s very difficult to get out of.

Planning is crucial in order to ensure accurate financial forecasting.

Think about things like the need for extra staff, or seasonal demand for stock. Be sure to take note of your tax obligations including VAT and PAYE. This is one of the areas where small businesses get caught out often and repeatedly.

4. You can use the Chase option to make your payments

It is advised that small entrepreneurs collect their payments for invoices as soon as they are able to.

It isn’t easy to recover an outstanding payment. Chase unpaid invoices immediately instead of letting them drag out.

Unpaid invoices can sometimes affect your business, affecting everything from the ability to replenish stock, to having to reduce the advertising budget or branding.

Be aware of what you owe by checking an annual cash flow plan frequently every week every month, at minimum. If you don’t know the current situation and how they’ll change, it’s impossible to make a proper plan for what’s ahead.

5. Feeling stuck? Do not be on your own.

A majority of accounting software, such as Xero and MYOB provides cash flow forecasting features that business owners can utilize. It’s an excellent idea to keep business owners in control on their money flow themselves it’s not a bad idea to consider having a monthly report with your accountant as part of the process.

Small business owners are too busy – often their time is better used on other areas of their businesses. Accounting experts can help organise their forecasting. Speak to your bank’s accountant or small company lender to get help addressing problems with growing a small business before they become an issue. It’s better to seek assistance when you realize that you’ll require it instead of burying your head in the sand, hoping things will get better.

You don’t need to be an accountant to create or manage an accurate Cash flow projection. However, you must ensure it is a regular and consistent element of your business’s planning. During uncertain times like a global pandemic, it’s more important than ever for small business owners to incorporate resilience into their businesses and among the most effective ways to do this is cash flow forecasting.