A step by step guide to cash-flow forecasting

At a glance:

Cash flow management shouldn’t be complicated but it’s more than just a few glances at your business’s bank account.

Controlling the flow of cash lets you take advantage of valuable opportunities, such as purchasing a new asset, employing extra staff, utilising discount.

Paying on time is vital to keep cash flow so don’t let your debtors hold you back.

A heads up: checking your bank account every week isn’t a way to forecast your cash flow.

Small business owners overwhelmed with the thought of preparing the cash flow forecast frequently believe that just a glance at their bank account will be enough to get the job done.

It is crucial for small-scale business owners to realize that cash flow forecasting is very simple and, instead of complimenting things, can make running your business easier and your chances of success greater.

Here are our top suggestions for cash flow forecasting as a professional.

1. Understand what cash flow is

Simply put the cash flow calculation is according to your payment in and your payments out and what you are owed and have on hand and what you have on hand, less what you are owed.

Cash flow estimates can reveal exactly how much you’ve got in the form of liquid funds.

Your cash inflows will be predominantly comprised of sales. Your payments out will be based on expenses like wages, rent and taxes, utilities and supplier payments.

2. Know why it matters

If you can keep a grip on your cash flow , you are able to run your business more efficient and effectively.

Small businesses often have stock and need to know how much stock they should keep in their inventory and if they should purchase in bulk, like.

If you’re not forecasting your cash flow properly then you’ll be unable to manage your stock on hand , or get the most out of an opportunity that comes your way - discounts on orders like that or being able to purchase a new asset.

A cash flow forecast could aid you in determining whether capital expenditures are feasible and is warranted at any time and assist in utilizing your funds to the maximum potential.

3. Be ready for the future

When you first start your business, the changes that come with growth might sneak into your life – for example, the transition away from keeping the business ticking over simply while keeping an eye on changing cash flow.

It’s critical to plan ahead. For example, if you’ve not managed your cash flow, you could find yourself out of stock and not capable of purchasing. I’ve also seen people who finance their purchase of stock using personal credit cards, which can be a costly cycle that’s hard to break out of.

Planning ahead is essential in order to ensure effective planning for cash flows.

Be aware of things like the demand for more staff or seasonal need for stock. Also, don’t forget to think about tax obligations including VAT and PAYE. This is an area where small businesses get caught out by time and time again.

4. Pay your bills with cash

It is recommended that small-scale entrepreneurs collect their payments for invoices as soon as possible.

It can be very difficult to get a payment that is not paid. Chase accounts that are unpaid immediately instead of letting them drag out.

Invoices not paid may be a major problem for your business, affecting everything from the ability to replenish stocks, to having to reduce the budget for advertising and branding.

Make sure you know what you’re due by checking in with an annual cash flow plan on a regular basis Each week is the ideal and once per month at minimum. If you don’t know where you stand it’s difficult to plan for what’s ahead.

5. Are you stuck? Don’t try to solve it on your own.

The majority of accounting software such as Xero and MYOB includes cash flow forecasting features that entrepreneurs can make use of. And while it is recommended for business owners to be aware the flow of cash, there’s nothing wrong with creating a monthly update along with your accountant in the process.

Small business owners are busy enough – sometimes their time should be spent on other aspects of their business. Accountants can assist them in planning their forecasts. Contact your bank’s accountant or small business loan provider to get help addressing small business growing pains before they become an issue. It is better to seek help as soon as you think you may need it rather instead of burying your head in the sand and pray that the problems will go away.

You don’t have to be an accountant to prepare or manage a budget for your cash flow. However, it is important to create it as a regular and regular part of your business’s planning. In times of uncertainty, such as a global pandemic and a global pandemic, it’s more essential than ever for small-scale entrepreneurs to instill resilience into their businesses and One of the most powerful ways to do that is to forecast cash flow.