A quick guide to cash flow forecasting

A quick glance:

Cash flow management shouldn’t be difficult but it’s more than a quick glance at your bank account for business.

Being aware of the flow of cash lets you benefit from lucrative opportunities, such as purchasing an item that’s new, hiring additional employees, or making use of a discount.

Paying on time is crucial to ensure the flow of cash, so don’t allow your creditors hold you back.

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

Small business owners who are overwhelmed by the thought of creating an annual cash flow forecast typically believe that only a glance over the bank account will suffice.

It’s important for small entrepreneurs to be aware that forecasting cash flow is easy to understand and, rather than complicating things, can help simplify running your business and your odds of success higher.

Below are some of our best suggestions for cash flow forecasting like a pro.

1. Understand what cash flow is

Simply put, cash flow is calculated using your transactions in and your payments out that you owe and have in your account, less what you have to pay.

An cash flow prediction can give you an exact estimate of how much you’ve got in the form of available liquid funds.

The money you pay in will predominantly comprised of sales, whereas your payments out will be based on expenses such as rent, wage, tax and utilities as well as supplier payments.

2. Find out why it is important

If you can keep a grip on your cash flow , you are able to run your business more efficient and effectively.

Small businesses often have stocks and must know what they need on hand and if they should purchase in bulk, for example.

If you’re not planning your cash flow in a timely manner, you won’t be able to effectively manage your stocks available or profit from an opportunity that arrives – such as the possibility of a sale on an order like that or being able to buy a new item.

The cash flow outlook could help you understand whether capital expenditures are feasible and is warranted at any time and assist in utilizing your funds to their fullest potential.

3. Be prepared to expand

When you start out in business it is possible that the changes that come as growth are often able to creep over you, including the transition between being in a position to maintain your business running without much effort, to needing to keep an eye on changing cash flow.

It is essential to plan ahead. For example, if you’re not managing your cash flow, you might run out of stock and not able to purchase. I’ve also witnessed businesses finance stock purchases on personal credit cards, which can result in a high-cost cycle that’s hard to come out of.

Planning ahead is essential in order to ensure the accuracy of planning for cash flows.

Consider things like the potential requirement for additional staff, or seasonal need for stock. And don’t forget your tax obligations , including PAYE and GST – that’s one expense area that small-sized companies are caught often and repeatedly.

4. Make sure you are able to track your payments

It’s advised that small business owners pay their invoices as quickly as they can.

It is often difficult to get back a late payment. Chase unpaid invoices immediately instead of waiting for them to accumulate.

Invoices that are not paid can be a major problem for your business, impacting everything from your ability to replenish stocks, or cut back on the advertising budget or branding.

Find out what you’re owed by reviewing an annual cash flow plan regularly Every week is ideal and once per month at minimum. If you’re not certain of the current situation, you can’t properly prepare for what’s coming up.

5. Are you stuck? Don’t be alone.

The majority of accounting software such as Xero and MYOB includes cash flow forecasting capabilities that entrepreneurs can make use of. And while it is beneficial to keep business owners aware in their financial situation, there’s nothing wrong with creating a monthly update along with your accountant as part of the process.

Small business owners are working enough and their time could be better spent on other aspects of their business. Accountants can assist in organising their forecasts. Consult with your bank’s accounting professional or small-business loan provider for assistance in tackling small business growing pains before they become a problem. It is better to seek help immediately if you think you may need it rather than to bury your head in the sand hoping the issues will go away.

It doesn’t require an accountant to develop or manage an accurate Cash flow projection. However, you must create it as a regular and regular part of your business’s planning. In times of uncertainty, such as an outbreak in the world, it’s more important than ever for small-scale business owners to develop resilience into their businesses and among the most effective ways to do that is by calculating cash flow forecasts.