A quick guide to cash-flow forecasting

Posted on: 23 Apr 2025 at 06:27 am

In a glance:

Controlling cash flow doesn’t have to be difficult, but it requires more than a quick glance at your business bank account.

Being aware of your cash flow allows you to profit from opportunities. Think about buying an asset that is new, hiring additional employees, or making use of discount.

When you pay on time, it is crucial to ensure cash flow . Don’t let your creditors get in the way.

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

Small-scale business owners overwhelmed by the idea of creating the cash flow forecast often convince themselves that just a glance at the bank account will accomplish the task.

It is crucial for small-scale entrepreneurs to be aware the importance of cash flow forecasting. It’s simple and, rather than complicating things, can make running your business easier and your chances of success higher.

We’ve got the best advice for cash flow forecasting like a pro.

1. Know what cash flow is.

Simply put it’s a calculation of cash flow using your transactions out and in which is what you owe and what you have in the bank, less what you owe.

A cash flow forecast can show you exactly how much you have in the way of liquid funds available.

Your payments in will be mostly comprised of sales, while your payments out will be based on expenses like wages, rent and utilities, tax, and supplier payments.

2. Find out why it is important

If you can keep a grip on your cash flow , you can run your business effectively and efficiently.

Many small businesses carry stock and need to know what they need in their inventory and whether they need to purchase in bulk, like.

If you’re not planning your cash flow in a timely manner, you won’t be able to effectively manage your stocks on hand , or profit from the opportunity that occurs – like discounts on orders like that or the ability to purchase a brand new asset.

An accurate cash flow projection can help you understand the possibility of capital expenditure and is warranted at any point, and help use your funds to the maximum potential.

3. Be prepared to expand

As you begin your journey in business and grow, the changes that come with growth can sometimes creep up on you – including the change of being capable of keeping your company running smoothly, to needing to keep an eye on the fluctuation of cash flow.

It’s essential to prepare ahead. For instance, if you’re not managing your cash flow, you might be in a stock shortage and not be capable of purchasing. I’ve also seen business owners finance stock purchases on personal credit cards, which could be a costly cycle that’s very difficult to get out of.

Planning is crucial when it comes to accurate cash flow forecasting.

Consider things like the potential requirement for additional staff, or seasonal demand for stocks. Also, don’t forget to think about taxes, which include PAYE and GST – that’s one area of expense that small-sized businesses are caught every now and again.

4. Make sure you are able to track your payments

It is recommended that small-scale businesses collect the payment for invoices as soon as possible.

It can be very difficult to recover a debt. Chase the invoices that are not paid immediately rather than waiting for them to accumulate.

Invoices not paid may have a serious impact on your business, impacting everything including the ability to replenish stock, to having to reduce your branding or advertising budget.

Be aware of what you owe by checking in with an annual cash flow plan regularly Every week is ideal, once a month at the very least. If you’re not sure the current situation it’s difficult to prepare for the future.

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

The majority of accounting software such as Xero and MYOB offers cash flow forecasting capabilities that entrepreneurs can make use of. Although it’s beneficial for business owners to stay aware on their money flow themselves, there’s nothing wrong with doing a monthly update with your accountant part of the process.

Small-scale business owners are often busy enough – sometimes their time should be to be spent on other aspects of their businesses. Accounting experts can assist with their forecasting. Consult with your bank’s accountant or business loan provider for assistance in tackling the growing issues of small businesses before they become a problem. It is better to seek help whenever you feel you might need it than to bury your head in the sand and pray that your problems will disappear.

It doesn’t require an accountant to prepare or manage a cash flow forecast. But , you should ensure it is a regular and consistent element of your business’s plan. During uncertain times like an outbreak in the world and a global pandemic, it’s more essential than ever before for small business owners to build resilience into their businesses and among the most effective methods to achieve this is by calculating cash flow forecasts.

Tags: cash flow, forecasting Categories: Business Loans

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