A quick guide to cash flow forecasting
A quick glance:
The management of cash flow doesn’t have to be complicated, but it requires more than a glance at your company’s bank account.
Getting a handle on the flow of cash lets you take advantage of valuable opportunities – think buying a new asset, employing more staff, or utilizing discounts.
Getting paid on time is crucial to ensure 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-scale business owners overwhelmed by the idea of making an annual cash flow forecast often think that a quick glance at the bank account can do the trick.
It’s essential for small business owners to understand the importance of cash flow forecasting. It’s quite straightforward and, instead of complimenting things, it can simplify running your business and the chances of success higher.
Below are some of our best advice for cash flow forecasting as a professional.
1. Understand what cash flow is
Put simply it’s a calculation of cash flow using your transactions in and your payments out that you owe and what you have in the bank and what you have on hand, less what you are owed.
A cash flow forecast can give you an exact estimate of how much you’ve got in the form of available liquid funds.
The money you pay in will mostly comprised of sales. However, your payments out will be based on expenses such as rent, wages, taxes, as well as supplier payments.
2. Be aware of the reasons why it’s important
If you have a grasp of your cash flow, you can run your business efficient and effectively.
Many small-scale businesses have inventory and require how much they should have on hand and whether they can purchase in bulk, like.
If you’re not planning your cash flow properly then you’ll be unable to effectively manage your stocks in the bank or take advantage of an opportunity that comes your way - the possibility of a sale on an order for instance, or being able to buy a new asset.
An accurate cash flow projection could assist you in understanding whether capital expenditures are feasible and is warranted at any time and also help you use your funds to their greatest potential.
3. Be ready to expand
When you first start your business, the changes that come as growth are often able to creep in on you. This includes the shift of being capable of keeping your business ticking over simply and not needing to keep an eye on the fluctuation of cash flow.
It’s crucial to think ahead. For instance, if you don’t manage your cash flow, you might find yourself running out of stocks and be in a position to purchase. I’ve also seen businesses finance purchase of stocks using personal credit cards, which can be an expensive cycle that’s difficult to get out of.
Pre-planning is also important in order to ensure successful cash flow forecasting.
Take into consideration things like the demand for more staff or seasonal demand for inventory. Also, don’t forget to think about tax obligations like VAT and PAYE. This is one expense area that small companies get caught often and repeatedly.
4. Pay your bills with cash
It is recommended that small-scale entrepreneurs collect their payments for invoices as soon as they are able to.
It isn’t easy to get back a late payment. Chase the invoices that are not paid immediately instead of let them linger.
Unpaid invoices can sometimes cause serious problems for your business, impacting everything from replenishing stocks, to having to reduce your branding or advertising budget.
Make sure you know what you’re due by checking your cash flow forecast every week Each week is the ideal, once a month at the very least. If you’re not sure the current situation it’s difficult to prepare for the future.
5. Are you feeling stuck? Don’t go it alone.
A majority of accounting software, such as Xero and MYOB has the ability to forecast cash flow, which business owners can benefit from. It’s a good idea for business owners to be in control of their cash flow it’s not a bad idea to consider creating a monthly update along with your accountant as part of the process.
Small business owners are working enough and their time is better focused on other aspects of the business and accountants can assist them in planning their forecasts. Consult with your bank’s accounting professional or small-business loan provider to find solutions to the growing issues of small businesses 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 and pray that things will get better.
There is no need to be an accountant in order to make or oversee an accurate Cash flow projection. But you do need to create it as a regular and consistent part of your business’s planning. When you’re in a time of uncertainty such as the global pandemic and a global pandemic, it’s more essential than ever for small entrepreneurs to instill resilience into their business and among the most effective ways to do this is through cash flow forecasting.
