A step by step guide to cash flow forecasting

In a glance:

Cash flow management shouldn’t be difficult however it’s more than a glance at your business’s bank account.

Getting a handle on the flow of cash lets you take advantage of valuable opportunities such as buying new equipment, hiring additional staff, or taking advantage of discounts.

Getting paid on time is essential to maintain cash flow so don’t let your creditors hold you back.

A heads up: checking your bank account at least once a week isn’t cash flow forecasting.

Small-scale business owners who are overwhelmed by the idea of making the cash flow forecast often convince themselves that only a glance over the bank account will suffice.

It’s essential for small business owners to know that forecasting cash flow is simple and, rather than complicating things, it can make running your business easier and your odds of succeeding higher.

These are the top suggestions for cash flow forecasting as a professional.

1. Learn about cash flow

In simple terms it is by calculating your cash flow based on the amount you pay into and out which is what you owe and what you have in the bank, less what you are owed.

An cash flow prediction will reveal exactly how much you’ve got in the form of liquid funds available.

Your payments in will be mostly made up of sales, while your payment out will cover expenses such as rent, wage, utilities, tax, and supplier payments.

2. Find out why it is important

If you can keep a grip on your cash flow you are able to run your business more efficient and effectively.

Many small businesses carry stocks and must know how much they should have available and if they should purchase in bulk, for example.

If you’re not forecasting your cash flow in a timely manner then you’ll be unable to manage your stock in the bank or profit from an opportunity that comes your way - a discount on an order like that or the possibility to buy a new asset.

Forecasting cash flows may help you understand whether capital expenditure is feasible and is warranted at any time and will help you utilize your funds to their greatest potential.

3. Be ready for the future

When you start out in business, the changes that come with growth might sneak up on you – including the change away from keeping the company running smoothly while keeping a close eye on fluctuating cash flow.

It is essential to plan ahead. If, for instance, you’re not managing your cash flow, you could run in a stock shortage and not be in a position to purchase. I’ve also seen corporate owners finance stock purchases on personal credit cards, which can be a costly cycle that’s difficult to come out of.

It is important to plan ahead in order to ensure successful planning for cash flows.

Consider things like the potential need for extra staff, or the seasonal need for stock. Don’t forget about your tax obligations , including the PAYE and GST. That’s an area where small businesses get caught out often and repeatedly.

4. Make sure you are able to track your payments

It’s advised that small businesses collect the payment for invoices as soon as possible.

It is often difficult to get back a late payment. Chase instalments that have not been paid promptly instead of let them linger.

Invoices that aren’t paid can sometimes affect your business, affecting anything including the ability to replenish stock, to having to reduce your advertising or branding budget.

Find out what you’re owed by checking an annual cash flow plan frequently Every week is ideal and once per month at a minimum. If you don’t know where things stand it’s difficult to prepare for what’s coming up.

5. Are you stuck? Don’t be alone.

Most accounting software like Xero and MYOB offers the ability to forecast cash flow, which entrepreneurs can make use of. Although it’s a good idea to keep business owners in control in their financial situation themselves 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 can be better spent on other aspects of the business and accountants can assist in organising their forecasts. Consult with your bank’s accountant or business lender to find solutions to the growing issues of small businesses prior to them becoming a problem. It’s better to seek assistance whenever you feel you might need it instead of burying your heads in the sand and hope the problems will go away.

There is no need to be an accountant in order to make or manage the budget for your cash flow. But you do need to create it as a regular and consistent element of your business plan. In uncertain times such as an epidemic that is spreading across the globe is more crucial than ever for small business owners to build resilience into their businesses and one of the more powerful ways to do that is to forecast cash flow.