A step by step guide to cash-flow forecasting

In a glance:

Cash flow management should not be difficult however it’s more than a quick glance at your business’s bank account.

Controlling the flow of cash lets you profit from opportunities, such as purchasing new equipment, hiring additional staff, or taking advantage of a discount.

Paying on time is crucial to ensure cash flow so don’t let your debtors get in the way.

A heads up: checking your bank accounts once a week doesn’t mean you’re forecasting cash flow.

Small-scale business owners who are overwhelmed by the thought of creating an annual cash flow forecast frequently believe that only a glance over the bank account will accomplish the task.

It’s essential for small business owners to realize that forecasting cash flow is quite straightforward and, rather than complicating things, can help make running your business easier and your chance at success greater.

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

1. Know what cash flow is.

Simply put, cash flow is calculated according to your payment in and your payments out that you owe and have on hand less what you have to pay.

The cash flow projection will give you an exact estimate of how much you’ve got in the form of liquid funds.

The money you pay in will predominantly comprised of sales, while your payments out will include expenses such as rent, wages, taxes, as well as supplier payments.

2. Learn why it’s important

If you are in control on your cash flow you can run your business more efficiently and profitably.

Small businesses often have stock and need to know what they need available and whether they can purchase in bulk, as an example.

If you’re not planning your cash flow correctly and accurately, you’ll not be able to manage your stock on hand , or profit from the opportunity that arrives – such as discounts on orders such as, for example or the possibility to buy a new item.

A cash flow forecast can assist you in understanding the possibility of capital expenditure and warranted at any moment and will help you utilize your funds to their greatest potential.

3. Be ready for growth

When you start out in business, the changes that come with growth can sometimes creep in on you. This includes the change between being in a position to maintain your business running without much effort, to needing to keep watch on fluctuations in cash flow.

It is essential to plan ahead. In the event that you’re not managing your cash flow, you may be out of stock and being able to buy. I’ve also seen businesses finance stock purchases using personal credit cards. This can be an expensive cycle that is difficult to get out of.

Planning ahead is essential in the process of accurate budgeting for the flow of cash.

Think about things like the need for staffing, or seasonal demand for stock. Be sure to take note of your taxes, which include the PAYE and GST. That’s one area of expense that small businesses get caught out by time and time again.

4. Chase your payments

It’s advised that small businesses collect the payment for invoices as quickly as they can.

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

Invoices not paid may be a major problem for your business, impacting everything including the ability to replenish stocks, or cut back on the budget for advertising and branding.

Make sure you know what you’re due by reviewing your cash flow forecast on a regular basis Every week is ideal and once per month at a minimum. If you’re not sure where things stand then you’re not able to properly prepare for what’s coming up.

5. Are you stuck? Don’t go it alone.

The majority of accounting software such as Xero and MYOB has the ability to forecast cash flow, which business owners can benefit from. And while it is a good idea to keep business owners aware the flow of cash There’s nothing wrong with making a monthly update alongside your accountant in the process.

Small business owners are already busy enough. Sometimes their time should be used on other areas of their business. Accountants can assist in organising their forecasts. Talk to your bank accounting professional or small-business lender to get help addressing problems with growing a small business prior to them becoming a problem. It’s better to get help whenever you feel that you’ll require it than to bury your head in the sand hoping the issues will go away.

You don’t need to be an accountant to develop or oversee the Cash flow projection. However, it is important to create it as a regular and regular part of your business’s planning. When you’re in a time of uncertainty such as an outbreak in the world, it’s more important than ever for small-scale business owners to incorporate resilience into their businesses and one of the most effective ways to do this is cash flow forecasting.