A quick guide to cash flow forecasting
In a glance:
Controlling cash flow doesn’t have to be complicated, but it requires more than just a few glances at your bank account for business.
A good understanding of cash flow enables you to take advantage of valuable opportunities such as buying a new asset, employing additional employees, or making use of discount.
When you pay on time, it is crucial to ensure cash flow so don’t let your creditors drag.
Heads up: looking at your bank accounts once a week isn’t forecasting your cash flow.
Small-scale business owners overwhelmed by the thought of creating an annual cash flow forecast typically believe that just a glance at their bank account will accomplish the task.
It’s crucial for small entrepreneurs to be aware that forecasting cash flow is simple and, instead of complimenting things, can to make managing your business simpler and the chances of succeeding higher.
We’ve got the best recommendations for cash flow forecasting as a professional.
1. Be aware of the cash flow
Simply put, cash flow is calculated by calculating your cash flow based on the amount you pay into and out that you owe and have in cash, less what you have to repay.
An cash flow prediction can show you exactly how much you have in terms of liquid funds available.
The money you pay in will mostly made up of sales, while your cash outs will also include costs like rent, wages, taxes, as well as supplier payments.
2. Be aware of the reasons why it’s important
When you have a handle on your cash flow , you can manage your business more efficiently and successfully.
A lot of small-scale businesses keep inventory and require what they need in their inventory and if they should purchase in bulk, for example.
If you’re not planning your cash flow accurately, you won’t be able to effectively manage your stocks on hand , or get the most out of a good opportunity when it is available - the possibility of a sale on an order, for instance, or being able to purchase a new asset.
Forecasting cash flows can assist you in understanding whether capital expenditure is feasible and is warranted at any time, and help use your money to its fullest potential.
3. Be prepared to grow
As you begin your journey in business, the changes that come as growth are often able to creep up on you – including the transition away from keeping the business ticking over simply and then needing to keep an eye on changing cash flow.
It is essential to plan ahead. In the event that you don’t manage your cash flow, you could run running out of stocks and be capable of purchasing. I’ve also witnessed businesses finance purchase of stocks using personal credit cards, which can result in a high-cost cycle that is difficult to come out of.
Pre-planning is also important in the process of effective cash flow forecasting.
Consider things like the potential need for extra staff, or seasonal demand for stock. Be sure to take note of your tax obligations , including the PAYE and GST. That’s one expense area that small businesses get caught out repeatedly.
4. You can use the Chase option to make your payments
It is suggested that small-scale business owners pay their invoices as soon as they are able to.
It can be very difficult to recover a debt. Chase instalments that have not been paid promptly instead of taking them off.
Invoices not paid may affect your business, and can affect everything from the ability to replenish stocks, to having to cut back on your advertising or branding budget.
Be aware of what you owe by checking in with your cash flow forecast regularly - each week is ideal and once per month at the very least. If you’re not sure what’s happening, you can’t properly plan for what’s ahead.
5. Are you feeling stuck? Do not be on your own.
Most accounting software like Xero and MYOB includes the ability to forecast cash flow, which entrepreneurs can make use of. It’s a good idea for business owners to stay on top the flow of cash it’s not a bad idea to consider having a monthly report with your accountant as part of the process.
Small business owners are busy enough – sometimes their time could be better used on other areas of their businesses. Accounting experts can assist in organising their forecasts. Talk to your bank accounting professional or small-business loan provider to get help addressing the growing issues of small businesses before they become a problem. It’s better to get help as soon as you think you may need it rather than to bury your head in the sand and hope the problems will go away.
You don’t need to be an accountant to develop or manage a budget for your cash flow. But , you should make it a frequent and consistent element of your business’s plan. When you’re in a time of uncertainty such as an epidemic that is spreading across the globe and a global pandemic, it’s more essential than ever for small-scale entrepreneurs to instill resilience into their companies and one of the most effective methods to achieve this is through cash flow forecasting.
