A quick guide to cash flow forecasting

A quick glance:

Controlling cash flow does not have to be complicated but it’s more than an occasional glance at your company’s bank account.

Getting a handle on your cash flow allows you to profit from opportunities. Think about buying a new asset, employing extra staff, utilising a discount.

Being timely paid is critical to maintaining the flow of cash, so don’t allow your debtors slow you down.

Attention: looking at your bank account every week isn’t a way to forecast your cash flow.

Small-scale business owners who are overwhelmed by the idea of creating the cash flow forecast typically believe that a quick glance at the bank account will be enough to get the job done.

It’s essential for small business owners to realize the importance of cash flow forecasting. It’s quite straightforward and, rather than complicating things, can help make running your business easier and your chance at succeeding higher.

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

1. Be aware of the cash flow

Put simply it’s a calculation of cash flow using your transactions out and in which is what you owe and have on hand and what you have on hand, less what you are owed.

An cash flow prediction can provide you with the exact amount you’ve got in the form of liquid funds.

Your payments in will be mostly made up of sales. However, your payment out will cover expenses such as rent, wage, taxes, utilities and supplier payments.

2. Learn why it’s important

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

Many small businesses carry inventory and require how much stock they should keep on hand and whether they can purchase in bulk, as an example.

If you’re not planning your cash flow accurately and accurately, you’ll not be able to effectively manage your stocks on hand , or get the most out of a good opportunity when it comes your way - for instance, a price reduction on an order for instance or being able to purchase a new asset.

The cash flow outlook will help you understand whether capital expenditure is feasible and warranted at any time and will help you utilize your funds to the maximum potential.

3. Be ready for the future

As you begin your journey in business, the changes that come as growth are often able to creep over you, including the change between being in a position to maintain the business ticking over simply, to needing to keep an eye on the fluctuation of cash flow.

It’s crucial to think ahead. In the event that you’ve not managed your cash flow you can end up out of stock and not being able to buy. I’ve also seen corporate owners finance purchase of stocks using personal credit cards, which can be a costly cycle that’s hard to get out of.

Planning ahead is essential for accurate planning for cash flows.

Consider things like the potential requirement for additional staff, or seasonal demand for stock. Also, don’t forget to think about tax obligations , including VAT and PAYE. This is one expense area that small-sized companies are caught by time and time again.

4. Chase your payments

It is recommended that small-scale businesses collect the payment for invoices as soon as they are able to.

It is often difficult to recover an outstanding payment. Chase instalments that have not been paid promptly rather than letting them drag out.

Unpaid invoices can sometimes affect your business, and can affect everything from your ability to replenish stocks, or cut back on your advertising or branding budget.

Make sure you know what you’re due by checking your forecast for cash flows regularly every week each month, or once at a minimum. If you’re not certain of where you stand then you’re not able to properly prepare for what’s coming up.

5. Feeling stuck? Do not be on your own.

Many accounting programs like Xero and MYOB provides cash flow forecasting features that entrepreneurs can make use of. Although it’s recommended to keep business owners on top on their money flow themselves it’s not a bad idea to consider doing a monthly update with your accountant in the process.

Small business owners are already busy enough. Sometimes their time can be better focused on other aspects of the business and accountants can assist them in planning their forecasts. Contact your bank’s accounting professional or small-business loan provider for assistance in tackling small business growth issues before they become a problem. It’s better to get help as soon as you think that you’ll require it than to bury your head in the sand, hoping things will get better.

It doesn’t require an accountant to prepare or oversee a budget for your cash flow. However, it is important to create it as a regular and consistent part of your business’s planning. When you’re in a time of uncertainty such as an outbreak in the world and a global pandemic, it’s more essential than ever for small-scale business owners to build resilience into their companies and one of the most powerful ways to do that is to forecast cash flow.