A quick guide to cash flow forecasting
A quick glance:
The management of cash flow shouldn’t be complicated, but it requires more than an occasional glance at your business bank account.
Getting a handle on cash flow enables you to benefit from lucrative opportunities, such as purchasing a new asset, employing additional staff, or taking advantage of the discount.
Paying on time is essential to maintain cash flow so don’t let your debtors slow you down.
Attention: looking at your bank accounts once a week isn’t cash flow forecasting.
Small business owners overwhelmed with the thought of preparing an annual cash flow forecast often think that just a glance at the bank account can suffice.
It’s essential for small business owners to realize the importance of cash flow forecasting. It’s quite straightforward and, rather than complicating things, can help simplify running your business and your odds of being successful is higher.
These are the top recommendations for forecasting cash flow as a professional.
1. Understand what cash flow is
In simple terms the cash flow calculation is according to your payment into and out - what you are owed and have in your account less what you are owed.
Cash flow estimates can provide you with the exact amount you’ve got in the form of liquid funds available.
Your payments in will be mostly comprised of sales, whereas your cash outs will also include costs like rent, wages, taxes, utilities and supplier payments.
2. Find out why it is important
If you have a grasp on your cash flow , then you are able to run your business more efficiently and profitably.
Many small businesses carry stocks and must know how much they should have in their inventory and if they should purchase in bulk, for instance.
If you’re not planning your cash flow in a timely manner and accurately, you’ll not be able to control your inventory on hand , or make the most of the opportunity that arrives – such as discounts on orders for instance or being able to purchase a new asset.
Forecasting cash flows may provide you with an understanding of the possibility of capital expenditure and warranted at any time and also help you use your money to its fullest potential.
3. Be prepared to expand
When you first start your business you will notice that the changes with growth might sneak into your life – for example, the change from being able to keep your business running without much effort, to needing to keep a close eye on fluctuating cash flow.
It’s crucial to think ahead. If, for instance, you’ve not managed your cash flow you can run in a stock shortage and not be capable of purchasing. I’ve also seen businesses finance stock purchases on personal credit cards, which can be a costly cycle that’s very difficult to break out of.
Planning ahead is essential when it comes to effective financial forecasting.
Consider things like the potential requirement for additional staff, or seasonal demand for stocks. Be sure to take note of your tax obligations , including GST and PAYE – that’s one area of expense that small-sized businesses are caught by time and time again.
4. Make sure you are able to track your payments
It is suggested that small-scale business owners collect payments for invoices as soon as they are able to.
It can be difficult to recover a debt. Chase the invoices that are not paid immediately instead of taking them off.
Invoices not paid may affect your business, impacting everything from your ability to replenish stocks to having to reduce the advertising budget or branding.
Find out what you’re owed by reviewing your forecast for cash flows regularly Each week is the ideal every month, at a minimum. If you’re not aware of what’s happening it’s difficult to prepare for what’s coming up.
5. Feeling stuck? Don’t try to solve it on your own.
Many accounting programs like Xero and MYOB has the capability of forecasting cash flow that business owners can use. Although it’s a good idea for business owners to be in control on their money flow themselves, there’s nothing wrong with having a monthly report with your accountant in the process.
Small-scale business owners are often working enough and their time is better focused on other aspects of their businesses. Accounting experts can assist in organising their forecasts. Talk to your bank accountant or small company loan provider for help with problems with growing a small business before they become an issue. It’s best to seek help when you realize you might need it instead of burying your head in the sand and pray that the issues will go away.
You don’t need to be an accountant to prepare or manage a Cash flow projection. But , you should make it a frequent and constant part of your business’s planning. During uncertain times like the global pandemic and a global pandemic, it’s more essential than ever for small-scale business owners to incorporate resilience into their businesses and among the most powerful ways to do this is through cash flow forecasting.
