A quick guide to cash-flow forecasting
In a glance:
Cash flow management doesn’t have to be complicated, but it requires more than a glance at your business’s bank account.
Being aware of cash flow enables you to make the most of opportunities such as buying an item that’s new, hiring more staff, or utilizing discounts.
Being timely paid is crucial to ensure cash flow so don’t let your creditors slow you down.
Beware: checking your bank account once a week isn’t a way to forecast your cash flow.
Small-scale business owners overwhelmed by the thought of creating the cash flow forecast typically believe that only a glance over the bank account can suffice.
It is crucial for small-scale business owners to know that cash flow forecasting is quite straightforward and, instead of complimenting things, can help in making running your business more efficient and your chances of success greater.
Below are some of our best recommendations for cash flow forecasting like a pro.
1. Be aware of the cash flow
Put simply it’s a calculation of cash flow based on your payments in and your payments out that you owe and have in cash in cash, less the amount you owe.
The cash flow projection will provide you with the exact amount 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 include 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 can manage your business more efficiently and profitably.
Small businesses often have inventory and require what they need in stock and whether they should buy in bulk, for example.
If you’re not planning your cash flow correctly then you’ll be unable to effectively manage your stocks on hand or profit from an opportunity that occurs – like for instance, a price reduction on an order, for instance or the possibility to buy a new item.
An accurate cash flow projection could help you understand whether capital expenditure is feasible and is warranted at any time and assist in utilizing your funds to the maximum potential.
3. Be prepared to expand
As you begin your journey in business you will notice that the changes with growth can sometimes creep up on you – including the change between being in a position to maintain the company running smoothly and then needing to keep an eye on changing cash flow.
It’s crucial to think ahead. For instance, if you’re not managing your cash flow, you could end up in a stock shortage and not be capable of purchasing. I’ve also witnessed people who finance their purchase of stocks using personal credit cards. This could be a costly cycle that is difficult to come out of.
Planning is crucial when it comes to effective planning for cash flows.
Consider things like the potential demand for more staff or seasonal demand for stocks. And don’t forget your taxes, which include the PAYE and GST. That’s an area where small businesses get caught out by time and time again.
4. You can use the Chase option to make your payments
It’s advised that small businesses collect the payment for invoices as fast as they can.
It can be difficult to get a payment that is not paid. Chase unpaid invoices immediately instead of let them linger.
Invoices that aren’t paid can sometimes be a major problem for your business, impacting everything from your ability to replenish stocks to having to cut back on the advertising budget or branding.
Find out what you’re owed by checking in with an annual cash flow plan regularly - each week is ideal and once per month at minimum. If you’re not aware of what’s happening it’s difficult to prepare for what’s coming up.
5. Are you stuck? Don’t be alone.
Most accounting software like Xero and MYOB offers cash flow forecasting capabilities that business owners can benefit from. While it’s an excellent idea for business owners to stay at the top of their cash flow but there’s nothing wrong with having a monthly report with your accountant part of the process.
Small-scale business owners are often working enough and their time should be focused on other aspects of their business. Accounting professionals can help organise their forecasting. Speak to your bank’s accountant or small company lender for assistance in tackling the growing issues of small businesses before they become a problem. It is better to seek help when you realize you’ll need it, rather instead of sticking your head in the sand and hope things will get better.
It doesn’t require an accountant to develop or oversee a budget for your cash flow. But you do need to create it as a regular and constant part of your business’s planning. In uncertain times such as a global pandemic and a global pandemic, it’s more essential than ever for small entrepreneurs to instill resilience into their businesses and one of the most effective ways to do that is cash flow forecasting.
