A quick guide to cash flow forecasting

At a glance:

Controlling cash flow does not have to be complicated however, it takes more than just a few glances at your company’s bank account.

Controlling your cash flow allows you to benefit from lucrative opportunities – think buying new equipment, hiring additional staff, or taking advantage of discounts.

Getting paid on time is vital to keep cash flow , so don’t let your creditors drag.

Heads up: looking at your bank account at least once a week isn’t forecasting your cash flow.

Small-scale business owners overwhelmed by the thought of preparing an annual cash flow forecast frequently believe that just a glance at their bank account will be enough to get the job done.

It’s important for small business owners to know the importance of cash flow forecasting. It’s simple and, instead of complimenting things, it can simplify running your business and your chance at succeeding higher.

Here are our top suggestions to forecast cash flow as a professional.

1. Learn about cash flow

Put simply the cash flow calculation is by calculating your cash flow based on the amount you pay into and out - what you are owed and what you have in the bank less what you have to repay.

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

Your cash inflows will be mostly comprised of sales, while your payments out will be based on expenses like rent, wages, taxes, utilities and supplier payments.

2. Know why it matters

If you are in control on your cash flow , you can manage your business more efficient and effectively.

Many small-scale businesses have stocks, and they need to know how much stock they should keep available and whether they can purchase in bulk, for instance.

If you’re not forecasting your cash flow properly and accurately, you’ll not be able to control your inventory in the bank or profit from an opportunity that comes your way - a discount on an order for instance or being able to purchase a new asset.

The cash flow outlook may provide you with an understanding of whether capital expenditures are feasible and is warranted at any time and will help you utilize your funds to their greatest potential.

3. Be ready for the future

When you start out in business you will notice that the changes 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 while keeping watch on fluctuations in cash flow.

It’s critical to plan ahead. For example, if you’ve not managed your cash flow you can end up out of stock and in a position to purchase. I’ve also seen business owners finance stock purchases using personal credit cards. This can be an expensive cycle that’s difficult to come out of.

Planning is crucial in order to ensure the accuracy of financial forecasting.

Think about things like the need for staffing, or seasonal demand for stock. Be sure to take note of your tax obligations including VAT and PAYE. This is one expense area that small companies get caught often and repeatedly.

4. Pay your bills with cash

It is suggested that small-scale business owners collect payments for invoices as soon as possible.

It isn’t easy to get a payment that is not paid. Chase unpaid invoices immediately rather than letting them drag out.

Invoices that are not paid can have a serious impact on your business, impacting everything including the ability to replenish stocks, to having to reduce your advertising or branding budget.

Be aware of what you owe by reviewing the cash flow projection every week - each week is ideal, once a month at the very least. If you’re not aware of the current situation, you can’t properly prepare for what’s coming up.

5. Are you feeling stuck? Do not be on your own.

A majority of accounting software, such as Xero and MYOB includes cash flow forecasting features that entrepreneurs can make use of. It’s a good idea for business owners to stay on top of their cash flow There’s nothing wrong with making a monthly update alongside your accountant part of the process.

Small-scale business owners are often busy enough – sometimes their time can be better used on other areas of their businesses. Accounting experts can assist in organising their forecasts. Talk to your bank accountant or small business loan provider to find solutions to the growing issues of small businesses before they become a problem. It’s best to seek help as soon as you think you might need it than to bury your head in the sand and hope your problems will disappear.

You don’t have to be an accountant to develop or oversee the cash flow forecast. But , you should create it as a regular and constant part of your business’s plan. During uncertain times like an epidemic that is spreading across the globe and a global pandemic, it’s more essential than ever for small-scale business owners to build resilience into their companies and among the most powerful methods to achieve this is cash flow forecasting.