A step by step guide to cash-flow forecasting

A quick glance:

The management of cash flow needn’t be difficult, but it requires more than a glance at your business bank account.

Being aware of the flow of cash allows you to profit from opportunities – think buying an item that’s new, hiring additional employees, or making use of discounts.

Getting paid on time is critical to maintaining cash flow . Don’t let your debtors get in the way.

Attention: looking at your bank account once a week isn’t a way to forecast your cash flow.

Small business owners overwhelmed with the thought of creating a cash flow forecast will typically believe that a quick glance at the bank account will accomplish the task.

It’s crucial for small entrepreneurs to be aware the importance of cash flow forecasting. It’s easy to understand and, instead of complimenting things, it can in making running your business more efficient and your chances of success higher.

Below are some of our best tips to forecast cash flow like a pro.

1. Understand what cash flow is

In simple terms, cash flow is calculated based on your payments in and your out which is what you owe and what you have in the bank, less what you have to repay.

Cash flow estimates can reveal exactly how much you have in terms of available liquid funds.

The money you pay in will mostly made up of sales. Your cash outs will also include costs such as rent, wages, taxes, utilities and supplier payments.

2. Learn why it’s important

If you can keep a grip of your cash flow, you can run your business more efficiently and successfully.

Many small businesses carry stocks, and they need to know how much they should have on hand and whether they need to purchase in bulk, for example.

If you’re not forecasting your cash flow correctly, you won’t be able to effectively manage your stocks on hand or profit from an opportunity that comes your way - discounts on orders for instance or the ability to purchase a brand new asset.

The cash flow outlook can provide you with an understanding of the possibility of capital expenditure and warranted at any moment and assist in utilizing your money to its fullest potential.

3. Be prepared for the future

If you are just beginning your career in business and grow, the changes that come from growth may sneak in on you. This includes the transition away from keeping your business ticking over simply, to needing to keep an eye on changing cash flow.

It is essential to plan ahead. For instance, if you haven’t managed your cash flow, you could find yourself out of stock and not able to purchase. I’ve also witnessed people who finance their stock purchases using personal credit cards. This could be a costly cycle that’s very difficult to escape from.

It is important to plan ahead for the accuracy of planning for cash flows.

Consider things like the potential need for staffing, or the seasonal need for stock. Be sure to take note of your tax obligations , including the PAYE and GST. That’s one of the areas where small companies get caught by time and time again.

4. Make sure you are able to track your payments

It is advised that small business owners collect payments for invoices as soon as possible.

It can be difficult to recover an outstanding payment. Chase instalments that have not been paid promptly instead of let them linger.

Invoices that are not paid can cause serious problems for your business, affecting anything from replenishing stocks to having to reduce your branding or advertising budget.

Find out what you’re owed by checking an annual cash flow plan on a regular basis - each week is ideal each month, or once at the very least. If you’re not certain of the current situation and how they’ll change, it’s impossible to make a proper prepare for the future.

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

A majority of accounting software, such as Xero and MYOB offers cash flow forecasting capabilities that business owners can utilize. Although it’s an excellent idea to keep business owners in control in their financial situation but there’s nothing wrong with having a monthly report with your accountant as part of the process.

Small business owners are too busy – often their time can be better to be spent on other aspects of the business and accountants can assist with their forecasting. Consult with your bank’s accountant or small business loan provider for assistance in tackling small business growth issues before they become an issue. It’s better to get help when you realize you may need it rather instead of sticking your head in the sand and pray that your problems will disappear.

It doesn’t require an accountant to create or oversee the Cash flow projection. However, it is important to make it a regular and regular part of your business plan. When you’re in a time of uncertainty such as a global pandemic is more crucial than ever before for small entrepreneurs to instill resilience into their companies and among the most effective methods to achieve this is by calculating cash flow forecasts.