A step by step guide to cash-flow forecasting

In a glance:

Managing cash flow should not be complicated, but it requires more than just a few glances at your bank account for business.

Getting a handle on the flow of cash lets you take advantage of valuable opportunities. Think about buying an item that’s new, hiring extra staff, utilising a discount.

Being timely paid is essential to maintain cash flow . Don’t let your creditors hold you back.

A heads up: checking your bank account once a week isn’t cash flow forecasting.

Small business owners overwhelmed with the idea of making a cash flow forecast will frequently believe that just a glance at their bank account will accomplish the task.

It’s important for small business owners to know that forecasting cash flow is simple and, instead of complimenting things, can make running your business easier and your chance at success higher.

These are the top tips to forecast cash flow like a pro.

1. Be aware of the cash flow

Simply put, cash flow is calculated using your transactions in and your out which is what you owe and what you have in the bank, less what you are owed.

An cash flow prediction will reveal exactly how much you have in terms of liquid funds.

Your cash inflows will be predominantly comprised of sales. Your payment out will cover expenses such as rent, wage, utilities, tax, and supplier payments.

2. Learn why it’s important

When you have a handle of your cash flow, you are able to run your business more efficiently and profitably.

Small businesses often have stocks, and they need to know how much stock they should keep on hand and whether they can purchase in bulk, as an example.

If you’re not planning your cash flow accurately it will be difficult to control your inventory in the bank or take advantage of an opportunity that occurs – like the possibility of a sale on an order such as, for example or being able to buy a new asset.

Forecasting cash flows will provide you with an understanding of whether capital expenditure is feasible and is warranted at any time and also help you use your funds to the maximum potential.

3. Be prepared for growth

If you are just beginning your career in business it is possible that the changes that come as growth are often able to creep into your life – for example, the change away from keeping the firm running at a steady pace, to needing to keep an eye on the fluctuation of cash flow.

It’s crucial to think ahead. For example, if you’re not managing your cash flow, you could end up in a stock shortage and not be capable of purchasing. I’ve also seen corporate owners finance stock purchases using personal credit cards. This can result in a high-cost cycle that is difficult to get out of.

Pre-planning is also important in the process of the accuracy of financial forecasting.

Think about things like the need for staffing, or the seasonal need for stock. Be sure to take note of your tax obligations , including VAT and PAYE. This is one of the areas where small-sized businesses are caught often and repeatedly.

4. Chase your payments

It is recommended that small-scale business owners pay their invoices as soon as possible.

It is often difficult to recover an outstanding payment. Chase unpaid invoices immediately rather than waiting for them to accumulate.

Invoices that aren’t paid can sometimes affect your business, and can affect everything from the ability to replenish 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 ideal, once a month at the very least. If you don’t know the current situation then you’re not able to properly think about what’s to come.

5. Are you feeling stuck? Do not be on your own.

A majority of accounting software, such as Xero and MYOB includes the ability to forecast cash flow, which business owners can use. While it’s an excellent idea to keep business owners at the top on their money flow There’s nothing wrong with having a monthly report with your accountant in the process.

Small business owners are busy enough – sometimes their time should be to be spent on other aspects of the business and accountants can assist with their forecasting. Contact your bank’s accounting professional or small-business lender for assistance in tackling problems with growing a small business before they become an issue. It’s best to seek help as soon as you think you might need it instead of sticking your head in the sand, hoping the issues will go away.

You don’t have to be an accountant in order to make or oversee an accurate financial forecast for cash flows. However, you must create it as a regular and consistent part of your business planning. During uncertain times like a global pandemic that is now more critical than ever for small-scale business owners to incorporate resilience into their companies and one of the most powerful ways to do this is by calculating cash flow forecasts.