A step by step guide to cash flow forecasting

In a glance:

Controlling cash flow need not be difficult however it’s more than an occasional glance at your business bank account.

Being aware of cash flow enables you to take advantage of valuable opportunities such as buying a new asset, employing extra staff, utilising the discount.

Being timely paid is essential to maintain cash flow , so don’t let your creditors hold you back.

A heads up: checking your bank accounts once a week isn’t a way to forecast your cash flow.

Small business owners overwhelmed with the thought of creating a cash flow forecast will frequently believe that only a glance over the bank account can accomplish the task.

It’s essential for small business owners to understand that forecasting cash flow is very simple and, instead of complimenting things, can help make running your business easier and your chances of success greater.

Here are our top suggestions for forecasting cash flow as a professional.

1. Understand what cash flow is

Simply put 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 have to pay.

A cash flow forecast will give you an exact estimate of how much you’ve got in terms of liquid funds available.

Your payments in will be mostly made up of sales. Your payments out will be based on expenses such as rent, wages, tax and utilities as well as 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 effectively and efficiently.

Many small-scale businesses have stock and need to know how much stock they should keep in stock and whether they need to purchase in bulk, like.

If you’re not planning your cash flow properly then you’ll be unable to manage your stock on hand , or make the most of opportunities when it arrives – such as for instance, a price reduction on an order, for instance or the possibility to buy a new item.

The cash flow outlook may assist you in understanding whether capital expenditures are feasible and is warranted at any time and will help you utilize your money to its fullest potential.

3. Be ready to expand

If you are just beginning your career in business, the changes that come with growth can sometimes creep up on you – including the change of being capable of keeping the business running without much effort and then needing to keep an eye on the fluctuation of cash flow.

It’s essential to prepare ahead. If, for instance, you’ve not managed your cash flow you can end up out of stock and in a position to purchase. I’ve also witnessed business owners finance stock purchases on personal credit cards. This can be an expensive cycle that’s hard to escape from.

Planning ahead is essential in order to ensure accurate cash flow forecasting.

Think about things like the requirement for additional staff, or seasonal need for stock. Be sure to take note of your taxes, which include VAT and PAYE. This is one area of expense that small-sized companies are caught repeatedly.

4. Chase your payments

It is suggested that small-scale business owners pay their invoices as soon as possible.

It can be very difficult to recover a debt. Chase instalments that have not been paid promptly instead of taking them off.

Invoices that aren’t paid can sometimes be a major problem for your business, affecting everything from the ability to replenish stocks, to having to reduce your branding or advertising budget.

Find out what you’re owed by checking the cash flow projection regularly every week and once per month at a minimum. If you’re not sure the current situation and how they’ll change, it’s impossible to make a proper plan for what’s ahead.

5. Are you feeling stuck? Don’t go it alone.

Many accounting programs like Xero and MYOB offers the ability to forecast cash flow, which business owners can benefit from. Although it’s recommended to keep business owners aware in their financial situation themselves it’s not a bad idea to consider creating a monthly update along with your accountant part of the process.

Small business owners are busy enough – sometimes their time is better used on other areas of their businesses. Accounting experts can help organise their forecasting. Speak to your bank’s accounting professional or small-business loan provider for assistance in tackling the growing issues of small businesses prior to them becoming a problem. It’s better to get help when you realize you might need it instead of burying your head in the sand and hope the issues will go away.

You don’t have to be an accountant to prepare or manage the cash flow forecast. But you do need to ensure it is a regular and constant part of your business’s plan. In uncertain times such as the global pandemic, it’s more important than ever for small entrepreneurs to instill resilient businesses. And one of the more powerful methods of doing this is by calculating cash flow forecasts.