A step by step guide to cash-flow forecasting

In a glance:

The management of cash flow should not be complicated but it’s more than an occasional glance at your bank account for business.

A good understanding of the flow of cash allows you to benefit from lucrative opportunities – think buying new equipment, hiring additional employees, or making use of a discount.

Being timely paid is critical to maintaining the flow of cash, so don’t allow your creditors get in the way.

Heads up: looking at your bank account every week isn’t a way to forecast your cash flow.

Small business owners who are overwhelmed by the thought of creating a cash flow forecast will often convince themselves that just a glance at their bank account can be enough to get the job done.

It’s essential for small business owners to know that cash flow forecasting is quite straightforward and, instead of complimenting things, it can to make managing your business simpler and the chances of success higher.

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

1. Be aware of the cash flow

In simple terms the cash flow calculation is according to your payment in and your payments out - what you are owed and have in your account and what you have on hand, less what you are owed.

An cash flow prediction can reveal exactly how much you have in the way of available liquid funds.

The money you pay in will predominantly comprised of sales, whereas your payment out will cover expenses like wages, rent and taxes, utilities and supplier payments.

2. Find out why it is important

If you are in control on your cash flow you can run your business more efficient and effectively.

Many small businesses carry stocks, and they need to know how much stock they should keep in stock and whether they should buy in bulk, for instance.

If you’re not planning your cash flow correctly, you won’t be able to effectively manage your stocks available or take advantage of a good opportunity when it is available - the possibility of a sale on an order like that or being able to purchase a new asset.

An accurate cash flow projection will aid you in determining the possibility of capital expenditure and warranted at any time and will help you utilize your funds to the maximum potential.

3. Be prepared to grow

If you are just beginning your career in business, the changes that come as growth are often able to creep up on you – including the change between being in a position to maintain the business running without much effort, to needing to keep an eye on the fluctuation of cash flow.

It’s essential to prepare ahead. For instance, if you’ve not managed your cash flow, you may find yourself out of stock and being able to buy. I’ve also seen businesses finance purchase of stock using personal credit cards. This can be an expensive cycle that’s very difficult to break out of.

Pre-planning is also important for accurate budgeting for the flow of cash.

Take into consideration things like the need for staffing, or the seasonal demand for stocks. Be sure to take note of your tax obligations including GST and PAYE – that’s an area where small-sized companies are caught by time and time again.

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 accounts that are unpaid immediately rather than waiting for them to accumulate.

Invoices that aren’t paid can sometimes affect your business, impacting everything from the ability to replenish stocks, or reduce the advertising budget or branding.

Find out what you’re owed by checking in with an annual cash flow plan frequently - each week is ideal, once a month at minimum. If you don’t know where things stand, you can’t properly plan for what’s ahead.

5. Do you feel stuck? Don’t be alone.

The majority of accounting software such as Xero and MYOB provides the ability to forecast cash flow, which entrepreneurs can make use of. It’s recommended for business owners to stay aware on their money flow themselves but there’s nothing wrong with doing a monthly update with your accountant part of the process.

Small business owners are already busy enough. Sometimes their time can be better spent on other aspects of their business. Accounting professionals can assist them in planning their forecasts. Speak to your bank’s accountant or business lender for help with small business growth issues before they become an issue. It’s better to seek assistance whenever you feel that you’ll require it instead of burying your head in the sand hoping things will get better.

It doesn’t require an accountant in order to make or manage the budget for your cash flow. But you do need to make it a regular and regular part of your business’s plan. In times of uncertainty, such as an outbreak in the world, it’s more important than ever for small-scale business owners to incorporate resilience into their business and one of the most effective methods of doing this is through cash flow forecasting.