A quick guide to cash-flow forecasting
In a glance:
The management of cash flow needn’t be difficult, but it requires more than a quick glance at your bank account for business.
Being aware of cash flow enables you to make the most of opportunities – think buying new equipment, hiring additional employees, or making use of a discount.
Being timely paid is vital to keep cash flow , so don’t let your debtors hold you back.
Beware: checking your bank accounts once a week isn’t cash flow forecasting.
Small business owners overwhelmed with the idea of creating a cash flow forecast will often think that just a glance at their bank account will suffice.
It is crucial for small-scale entrepreneurs to be aware that cash flow forecasting is easy to understand and, instead of complimenting things, can make running your business easier and your chances of succeeding higher.
We’ve got the best suggestions for forecasting cash flow as a professional.
1. Know what cash flow is.
In simple terms, cash flow is calculated by calculating your cash flow based on the amount you pay in and your payments out which is what you owe and have in your account and what you have on hand, less what you are owed.
A cash flow forecast will provide you with the exact amount you have in the way of liquid funds.
Your cash inflows will be mostly made up of sales, whereas your payment out will cover expenses such as rent, wage, utilities, tax, and supplier payments.
2. Be aware of the reasons why it’s important
If you have a grasp on your cash flow , you can run your business more efficiently and profitably.
A lot of small-scale businesses keep stocks and must know how much stock they should keep in stock and whether they can purchase in bulk, for example.
If you’re not forecasting your cash flow correctly then you’ll be unable to control your inventory on hand , or get the most out of the opportunity that comes your way - the possibility of a sale on an order for instance or the ability to purchase a new asset.
Forecasting cash flows will assist you in understanding whether capital expenditure is feasible and is warranted at any time and will help you utilize your funds to the maximum potential.
3. Be ready for growth
When you start out in business it is possible that the changes that come from growth may sneak up on you – including the transition of being capable of keeping the business ticking over simply and then needing to keep an eye on changing cash flow.
It’s essential to prepare ahead. For example, if you’re not managing your cash flow you can find yourself out of stock and being able to buy. I’ve also witnessed businesses finance stock purchases using personal credit cards. This can be an expensive cycle that’s difficult to get out of.
Pre-planning is also important for accurate financial forecasting.
Consider things like the potential requirement for additional staff, or seasonal demand for inventory. Don’t forget about your taxes, which include PAYE and GST – that’s one area of expense that small businesses get caught out often and repeatedly.
4. You can use the Chase option to make your payments
It is advised that small business owners pay their invoices as soon as they are able to.
It can be difficult to recover an outstanding payment. Chase unpaid invoices immediately instead of taking them off.
Invoices that aren’t paid can sometimes cause serious problems for your business, impacting everything from your ability to replenish stock, to having to cut back on your branding or advertising budget.
Find out what you’re owed by checking the cash flow projection frequently Every week is ideal each month, or once at the very least. If you don’t know what’s happening, you can’t properly prepare for the future.
5. Do you feel stuck? Do not be on your own.
Many accounting programs like Xero and MYOB provides the capability of forecasting cash flow that entrepreneurs can make use of. While it’s a good idea for business owners to be on top in their financial situation themselves, there’s nothing wrong with having a monthly report with your accountant as part of the process.
Small-scale business owners are often already busy enough. Sometimes their time can be better to be spent on other aspects of their business. Accountants can assist with their forecasting. Speak to your bank’s accountant or small company loan provider for help with small business growth issues before they become a problem. It is better to seek help whenever you feel you might need it instead of burying your heads in the sand and hope your problems will disappear.
You don’t have to be an accountant in order to make or oversee a Cash flow projection. But , you should ensure it is a regular and consistent part of your business’s planning. In times of uncertainty, such as an epidemic that is spreading across the globe is more crucial than ever for small-scale entrepreneurs to instill resilience into their business and One of the most effective methods of doing this is through cash flow forecasting.
