A quick guide to cash flow forecasting
In a glance:
Managing cash flow shouldn’t be difficult, but it requires more than just a few glances at your business bank account.
A good understanding of the flow of cash lets you benefit from lucrative opportunities, such as purchasing new equipment, hiring additional staff, or taking advantage of a discount.
Paying on time is crucial to ensure cash flow so don’t let your debtors hold you back.
Attention: looking at your bank account at least once a week doesn’t mean you’re forecasting cash flow.
Small business owners who are overwhelmed by the thought of creating an annual cash flow forecast often convince themselves that just a glance at the bank account will suffice.
It’s important for small business owners to know that forecasting cash flow is quite straightforward and, rather than complicating things, can help make running your business easier and your chances of being successful is higher.
These are the top suggestions for forecasting cash flow as a professional.
1. Understand what cash flow is
Put simply it is using your transactions into and out that you owe and what you have in the bank less what you are owed.
The cash flow projection can provide you with the exact amount you’ve got in the form of liquid funds.
Your inflows into your account will be mostly comprised of sales. However, your payments out will include expenses such as rent, wages, taxes, utilities and supplier payments.
2. Find out why it is important
If you can keep a grip on your cash flow , then you are able to run your business more efficient and effectively.
A lot of small-scale businesses keep stock and need to know what they need 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 manage your stock on hand or get the most out of the opportunity that arrives – such as a discount on an order such as, for example or the ability to buy a new item.
The cash flow outlook could aid you in determining the possibility of capital expenditure and warranted at any moment, and help use your money to its fullest potential.
3. Be prepared to expand
When you first start your business and grow, the changes that come as growth are often able to creep into your life – for example, the transition of being capable of keeping your company running smoothly, to needing to keep an eye on changing cash flow.
It’s critical to plan ahead. If, for instance, you’ve not managed your cash flow you can end up running out of stocks and be able to purchase. I’ve also seen businesses finance stock purchases on personal credit cards. This can result in a high-cost cycle that’s very difficult to escape from.
Planning ahead is essential in order to ensure accurate cash flow forecasting.
Consider things like the potential demand for more staff or seasonal demand for stock. Be sure to take note of your tax obligations including GST and PAYE – that’s an area where small-sized companies are caught every now and again.
4. You can use the Chase option to make your payments
It is advised that small business owners pay their invoices as fast as they can.
It can be very difficult to recover a debt. Chase the invoices that are not paid immediately rather than taking them off.
Invoices not paid may be a major problem for your business, and can affect everything from replenishing stocks, or cut back on your branding or advertising budget.
Be aware of what you owe by checking your forecast for cash flows every week - each week is ideal, once a month at 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. Feeling stuck? Don’t go it alone.
The majority of accounting software such as Xero and MYOB offers the ability to forecast cash flow, which business owners can use. While it’s an excellent idea for business owners to be aware in their financial situation There’s nothing wrong with creating a monthly update along with your accountant as part of the process.
Small-scale business owners are often working enough and their time should be focused on other aspects of their business. Accountants can help organise their forecasting. Speak to your bank’s accountant or business lender for assistance in tackling the growing issues of small businesses before they become a problem. It’s better to get help whenever you feel you might need it than to bury your head in the sand, hoping your problems will disappear.
There is no need to be an accountant to create or oversee the financial forecast for cash flows. However, it is important to create it as a regular and regular part of your business planning. When you’re in a time of uncertainty such as an outbreak in the world is more crucial than ever before for small business owners to incorporate resilience into their businesses and among the most effective ways to do this is to forecast cash flow.
