A step by step guide to cash flow forecasting
A quick glance:
The management of cash flow shouldn’t be difficult, but it requires more than a quick glance at your bank account for business.
Controlling the flow of cash lets you make the most of opportunities – think buying a new asset, employing more staff, or utilizing discount.
Paying on time is crucial to ensure cash flow . Don’t let your creditors slow you down.
A heads up: checking your bank account once a week doesn’t mean you’re forecasting cash flow.
Small business owners who are overwhelmed by the thought of preparing an annual cash flow forecast frequently believe that just a glance at their bank account will suffice.
It’s essential for small business owners to know the importance of cash flow forecasting. It’s simple and, instead of complimenting things, it can in making running your business more efficient and your odds of succeeding higher.
Below are some of our best tips for cash flow forecasting like a pro.
1. Be aware of the cash flow
Simply put it’s a calculation of cash flow using your transactions in and your payments out which is what you owe and have on hand, less what you have to repay.
The cash flow projection can give you an exact estimate of how much you have in terms of liquid funds available.
The money you pay in will mostly comprised of sales, whereas your cash outs will also include costs like rent, wages, taxes, utilities and supplier payments.
2. Find out why it is important
When you have a handle of your cash flow, you can manage your business more effectively and efficiently.
Many small businesses carry stocks and must know how much stock they should keep in their inventory and if they should purchase in bulk, like.
If you’re not planning your cash flow accurately, you won’t be able to effectively manage your stocks in the bank or profit from opportunities when it occurs – like a discount on an order like that or the ability to purchase a brand new asset.
Forecasting cash flows could help you understand whether capital expenditure is feasible and warranted at any moment and will help you utilize your funds to their greatest potential.
3. Be prepared to grow
As you begin your journey in business it is possible that the changes that come with growth might sneak over you, including the transition between being in a position to maintain your firm running at a steady pace and not needing to keep a close eye on fluctuating cash flow.
It’s crucial to think ahead. For example, if you’ve not managed your cash flow you can run out of stock and in a position to purchase. I’ve also witnessed people who finance their stock purchases using personal credit cards, which can be a costly cycle that’s very difficult to come out of.
Pre-planning is also important for accurate planning for cash flows.
Be aware of things like the requirement for additional staff, or the seasonal demand for inventory. Be sure to take note of your tax obligations like the PAYE and GST. That’s one area of expense that small businesses get caught out often and repeatedly.
4. Make sure you are able to track your payments
It is recommended that small-scale entrepreneurs collect their payments for invoices as soon as they are able to.
It can be difficult to get back a late payment. Chase instalments that have not been paid promptly rather than letting them drag out.
Invoices that are not paid can cause serious problems for your business, affecting everything from replenishing stock, to having to cut back on the budget for advertising and branding.
Be aware of what you owe by checking an annual cash flow plan regularly - each week is ideal every month, at a minimum. If you’re not aware of what’s happening then you’re not able to properly prepare for what’s coming up.
5. Do you feel stuck? Don’t be alone.
The majority of accounting software such as Xero and MYOB provides cash flow forecasting capabilities that business owners can benefit from. Although it’s beneficial to keep business owners on top of their cash flow, there’s nothing wrong with doing a monthly update with your accountant in the process.
Small-scale business owners are often working enough and their time could be better spent on other aspects of their businesses. Accounting experts can assist with their forecasting. Consult with your bank’s accounting professional or small-business loan provider for help with small business growing pains before they become an issue. It’s best to seek help whenever you feel that you’ll require it than to bury your head in the sand and pray that things will get better.
There is no need to be an accountant to create or manage an accurate Cash flow projection. But , you should make it a regular and consistent element of your business’s planning. In uncertain times such as an epidemic that is spreading across the globe and a global pandemic, it’s more essential than ever for small business owners to build resilience into their businesses and one of the most powerful ways to do that is cash flow forecasting.
