A quick guide to cash-flow forecasting
At a glance:
Controlling cash flow doesn’t have to be difficult, but it requires more than a glance at your company’s bank account.
A good understanding of the flow of cash allows you to make the most of opportunities, such as purchasing an item that’s new, hiring extra staff, utilising discount.
Paying on time is essential to maintain cash flow , so don’t let your creditors drag.
A heads up: checking your bank accounts once a week isn’t cash flow forecasting.
Small-scale business owners overwhelmed by the thought of creating the cash flow forecast often think that just a glance at the bank account can accomplish the task.
It is crucial for small-scale entrepreneurs to be aware that cash flow forecasting is simple and, instead of complimenting things, can help simplify running your business and your chance at success greater.
We’ve got the best suggestions for forecasting cash flow as a professional.
1. Know what cash flow is.
Simply put it is based on your payments into and out that you owe and have in your account in cash, less the amount you have to repay.
A cash flow forecast will give you an exact estimate of how much you’ve got in the form of available liquid funds.
Your cash inflows will be predominantly comprised of sales, whereas your payments out will be based on expenses like rent, wages, utilities, tax, and supplier payments.
2. Be aware of the reasons why it’s important
If you can keep a grip on your cash flow , you can manage your business more efficiently and profitably.
Many small businesses carry stock and need to know how much they should have in stock and whether they can purchase in bulk, as an example.
If you’re not planning your cash flow correctly it will be difficult to effectively manage your stocks on hand , or take advantage of an opportunity that is available - the possibility of a sale on an order, for instance or the possibility to purchase a new asset.
Forecasting cash flows could provide you with an understanding of whether capital expenditure is possible and is warranted at any point and assist in utilizing your funds to their greatest potential.
3. Be ready to grow
If you are just beginning your career in business it is possible that the changes that come with growth might sneak over you, including the transition between being in a position to maintain your company running smoothly while keeping a close eye on fluctuating cash flow.
It’s essential to prepare ahead. For instance, if you don’t manage your cash flow you can end up running out of stocks and be in a position to purchase. I’ve also witnessed business owners finance stock purchases on personal credit cards. This could be a costly cycle that’s hard to come out of.
Planning is crucial when it comes to accurate budgeting for the flow of cash.
Take into consideration things like the requirement for additional staff, or seasonal demand for stock. Be sure to take note of your tax obligations like VAT and PAYE. This is one area of expense that small businesses get caught out every now and again.
4. Chase your payments
It is suggested that small-scale businesses collect the payment for invoices as soon as they are able to.
It isn’t easy to get back a late payment. Chase the invoices that are not paid immediately instead of let them linger.
Invoices that are not paid can cause serious problems for your business, affecting everything from your ability to replenish stock, to having to cut back on the advertising budget or branding.
Find out what you’re owed by reviewing your cash flow forecast on a regular basis Every week is ideal, once a month at a minimum. If you don’t know where things stand and how they’ll change, it’s impossible to make a proper plan for what’s ahead.
5. Are you stuck? Don’t try to solve it on your own.
Most accounting software like Xero and MYOB includes cash flow forecasting capabilities that business owners can use. It’s a good idea for business owners to be in control on their money flow themselves, there’s nothing wrong with creating a monthly update along with your accountant part of the process.
Small business owners are too busy – often their time should be used on other areas of their businesses. Accounting experts can assist in organising their forecasts. Contact your bank’s accountant or business lender to get help addressing problems with growing a small business prior to them becoming a problem. It’s best to seek help immediately if you think you might need it instead of burying your head in the sand hoping the issues will go away.
You don’t need to be an accountant to prepare or oversee the budget for your cash flow. But , you should create it as a regular and constant part of your business plan. When you’re in a time of uncertainty such as a global pandemic and a global pandemic, it’s more essential than ever before for small business owners to build resilient businesses. And one of the most powerful ways to do that is through cash flow forecasting.
