A step by step guide to cash-flow forecasting
A quick glance:
Controlling cash flow needn’t be difficult but it’s more than a glance at your business’s bank account.
Getting a handle on cash flow enables you to profit from opportunities – think buying an asset that is new, hiring extra staff, utilising the discount.
When you pay on time, it is vital to keep cash flow so don’t let your creditors drag.
Beware: checking your bank accounts once a week isn’t cash flow forecasting.
Small business owners overwhelmed with the thought of preparing the cash flow forecast often convince themselves that just a glance at the bank account will suffice.
It’s crucial for small business owners to realize the importance of cash flow forecasting. It’s quite straightforward and, instead of complimenting things, can simplify running your business and your odds of success greater.
These are the top recommendations for cash flow forecasting like a pro.
1. Be aware of the cash flow
Put simply it’s a calculation of cash flow using your transactions in and your payments out - what you are owed and have in your account less what you have to repay.
A cash flow forecast will provide you with the exact amount you have in the way of available liquid funds.
The money you pay in will mostly comprised of sales. Your payments out will include expenses such as rent, wage, utilities, tax, and supplier payments.
2. Be aware of the reasons why it’s important
If you can keep a grip of your cash flow, you can run your business efficiently and successfully.
Many small businesses carry inventory and require how much stock they should keep on hand and whether they should buy in bulk, for instance.
If you’re not planning your cash flow properly and accurately, you’ll not be able to control your inventory on hand or take advantage of the opportunity that is available - a discount on an order such as, for example, or being able to purchase a brand new asset.
A cash flow forecast may aid you in determining whether capital expenditures are feasible and warranted at any moment and also help you use your funds to their greatest potential.
3. Be prepared to expand
When you start out in business, the changes that come with growth might sneak in on you. This includes the transition of being capable of keeping your firm running at a steady pace while keeping watch on fluctuations in cash flow.
It’s essential to prepare ahead. For example, if you’ve not managed your cash flow, you might end up out of stock and not being able to buy. I’ve also witnessed people who finance their stock purchases using personal credit cards. This could be a costly cycle that’s hard to come out of.
It is important to plan ahead for the accuracy of financial forecasting.
Take into consideration things like the demand for more staff or seasonal demand for stock. Don’t forget about your tax obligations , including VAT and PAYE. This is one expense area that small companies get caught often and repeatedly.
4. You can use the Chase option to make your payments
It is advised that small businesses collect the payment for invoices as quickly as they can.
It isn’t easy to get back a late payment. Chase accounts that are unpaid immediately instead of letting them drag out.
Invoices that aren’t paid can sometimes affect your business, affecting everything from replenishing stocks, to having to cut back on the budget for advertising and branding.
Find out what you’re owed by checking in with your forecast for cash flows regularly Each week is the ideal and once per month at a minimum. If you’re not sure where things stand then you’re not able to properly plan for what’s ahead.
5. Are you stuck? Do not be on your own.
Most accounting software like Xero and MYOB offers cash flow forecasting capabilities that business owners can benefit from. While it’s recommended to keep business owners aware of their cash flow themselves, there’s nothing wrong with creating a monthly update along with your accountant part of the process.
Small-scale business owners are often too busy – often their time can be better used on other areas of their businesses. Accounting experts can assist with their forecasting. Talk to your bank accountant or small company loan provider to find solutions to the growing issues of small businesses before they become a problem. It’s better to get help whenever you feel you’ll need it, rather instead of sticking your head in the sand and pray that the issues will go away.
You don’t have to be an accountant in order to make or manage an accurate Cash flow projection. However, you must make it a frequent and constant part of your business planning. In uncertain times such as an outbreak in the world, it’s more important than ever for small-scale business owners to build resilient businesses. And one of the more powerful ways to do that is through cash flow forecasting.
