A quick guide to cash flow forecasting

In a glance:

Cash flow management does not have to be difficult however, it takes more than just a few glances at your business bank account.

Controlling the flow of cash allows you to take advantage of valuable opportunities, such as purchasing new equipment, hiring extra staff, utilising the discount.

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

Attention: looking at your bank accounts once a week isn’t forecasting your cash flow.

Small business owners overwhelmed with the idea of creating an annual cash flow forecast often convince themselves that just a glance at their bank account will be enough to get the job done.

It is crucial for small-scale business owners to realize that cash flow forecasting is simple and, instead of complimenting things, it can in making running your business more efficient and your odds of success greater.

Below are some of our best suggestions for cash flow forecasting as a professional.

1. Learn about cash flow

Put simply, cash flow is calculated by calculating your cash flow based on the amount you pay in and your out and what you are owed and have in cash and what you have on hand, less what you have to pay.

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

The money you pay in will predominantly comprised of sales. However, your cash outs will also include costs like rent, wages, utilities, tax, and supplier payments.

2. Know why it matters

If you can keep a grip of your cash flow, you can run your business more efficiently and profitably.

Many small businesses carry stocks and must know what they need available and if they should purchase in bulk, like.

If you’re not forecasting your cash flow correctly it will be difficult to effectively manage your stocks on hand , or take advantage of a good opportunity when it comes your way - discounts on orders, for instance, or being able to purchase a new asset.

The cash flow outlook will assist you in understanding whether capital expenditure is possible and warranted at any time, and help use your funds to the maximum potential.

3. Be prepared to expand

If you are just beginning your career in business you will notice that the changes from growth may sneak in on you. This includes the transition between being in a position to maintain the firm running at a steady pace, to needing to keep a close eye on fluctuating cash flow.

It’s essential to prepare ahead. If, for instance, you’re not managing your cash flow, you might be out of stock and not being able to buy. I’ve also seen people who finance their purchase of stocks using personal credit cards, which can be a costly cycle that’s very difficult to break out of.

Planning is crucial when it comes to successful planning for cash flows.

Think about things like the need for staffing, or seasonal demand for stocks. And don’t forget your tax obligations like GST and PAYE – that’s one of the areas where small-sized companies are caught repeatedly.

4. Chase your payments

It’s advised that small business owners pay their invoices as soon as they are able to.

It is often difficult to recover a debt. Chase unpaid invoices immediately instead of letting them drag out.

Invoices that are not paid can have a serious impact on your business, impacting everything from replenishing stocks, to having to reduce the advertising budget or branding.

Make sure you know what you’re due by checking in with your forecast for cash flows on a regular basis Every week is ideal every month, at the very least. If you’re not sure the current situation and how they’ll change, it’s impossible to make a proper prepare for what’s coming up.

5. Are you stuck? Don’t be alone.

Most accounting software like Xero and MYOB offers the capability of forecasting cash flow that business owners can benefit from. And while it is an excellent idea to keep business owners on top in their financial situation themselves it’s not a bad idea to consider creating a monthly update along with your accountant part of the process.

Small business owners are busy enough – sometimes their time should be spent on other aspects of their business. Accountants can assist them in planning their forecasts. Consult with your bank’s accountant or business lender to find solutions to small business growing pains before they become an issue. It is better to seek help when you realize you may need it rather than to bury your head in the sand hoping your problems will disappear.

It doesn’t require an accountant to create or manage a budget for your cash flow. However, it is important to ensure it is a regular and constant part of your business planning. During uncertain times like an outbreak in the world is more crucial than ever for small entrepreneurs to instill resilience into their companies and One of the most powerful methods of doing this is through cash flow forecasting.