A step by step guide to cash-flow forecasting

A quick glance:

Controlling cash flow needn’t be complicated, but it requires more than an occasional glance at your business’s bank account.

Getting a handle on the flow of cash allows you to profit from opportunities – think buying an item that’s new, hiring additional staff, or taking advantage of a discount.

When you pay on time, it is crucial to ensure the flow of cash, so don’t allow your debtors hold you back.

Attention: looking at your bank account once a week doesn’t mean you’re forecasting cash flow.

Small-scale business owners who are overwhelmed by the idea of creating an annual cash flow forecast often think that just a glance at their bank account can suffice.

It is crucial for small-scale business owners to understand the importance of cash flow forecasting. It’s easy to understand and, rather than complicating things, can make running your business easier and your chances of success greater.

We’ve got the best recommendations to forecast cash flow like a pro.

1. Be aware of the cash flow

Simply put the cash flow calculation is based on your payments in and your out which is what you owe and have in cash in cash, less the amount you have to repay.

The cash flow projection can give you an exact estimate of how much you’ve got in terms of liquid funds.

Your cash inflows will be mostly comprised of sales, while your payments out will be based on expenses such as rent, wage, tax and utilities as well as supplier payments.

2. Learn why it’s important

If you have a grasp of your cash flow, you can run your business more effectively and efficiently.

Many small-scale businesses have stocks and must know how much stock they should keep on hand and whether they need to purchase in bulk, like.

If you’re not planning your cash flow properly and accurately, you’ll not be able to manage your stock in the bank or take advantage of an opportunity that occurs – like for instance, a price reduction on an order like that or being able to purchase a new asset.

An accurate cash flow projection can help you understand whether capital expenditure is feasible and warranted at any moment and will help you utilize your funds to the maximum potential.

3. Be ready to grow

As you begin your journey in business and grow, the changes that come as growth are often able to creep up on you – including the transition from being able to keep your firm running at a steady pace while keeping a close eye on fluctuating cash flow.

It’s essential to prepare ahead. In the event that you don’t manage your cash flow you can be out of stock and not in a position to purchase. I’ve also witnessed businesses finance purchase of stocks using personal credit cards, which can result in a high-cost cycle that’s difficult to escape from.

It is important to plan ahead for accurate budgeting for the flow of cash.

Be aware of things like the demand for more staff or seasonal demand for stock. Also, don’t forget to think about tax obligations like PAYE and GST – that’s one expense area that small businesses get caught out often and repeatedly.

4. Chase your payments

It is recommended that small-scale businesses collect the payment for invoices as fast as they can.

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

Invoices that are not paid can have a serious impact on your business, affecting anything from the ability to replenish stock, to having to cut back on the advertising budget or branding.

Be aware of what you owe by checking in with your forecast for cash flows on a regular basis Each week is the ideal each month, or once at a minimum. If you’re not sure where things stand and how they’ll change, it’s impossible to make a proper plan for what’s ahead.

5. Feeling stuck? Don’t be alone.

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

Small business owners are too busy – often their time should be to be spent on other aspects of their business. Accounting professionals can assist in organising their forecasts. Talk to your bank accountant or business lender to find solutions to small business growing pains before they become a problem. It’s best to seek help whenever you feel you might need it than to bury your head in the sand hoping the problems will go away.

It doesn’t require an accountant to create or oversee a budget for your cash flow. But , you should make it a frequent and consistent element of your business planning. When you’re in a time of uncertainty such as a global pandemic and a global pandemic, it’s more essential than ever for small business owners to develop resilience into their businesses and one of the more powerful methods to achieve this is cash flow forecasting.