A quick guide to cash flow forecasting
In a glance:
The management of cash flow should not be difficult however it’s more than just a few glances at your business bank account.
Being aware of cash flow enables you to take advantage of valuable opportunities, such as purchasing a new asset, employing additional employees, or making use of the discount.
Paying on time is essential to maintain cash flow . Don’t let your creditors drag.
Heads up: looking at your bank account every week doesn’t mean you’re forecasting cash flow.
Small-scale business owners who are overwhelmed by the thought of preparing a cash flow forecast will often think that just a glance at their bank account will do the trick.
It’s important for small business owners to know that forecasting cash flow is quite straightforward and, instead of complimenting things, can to make managing your business simpler and your chance at success higher.
Below are some of our best tips for forecasting cash flow as a professional.
1. Understand what cash flow is
Simply put it’s a calculation of cash flow according to your payment into and out that you owe and have in cash and what you have on hand, less what you have to repay.
A cash flow forecast will provide you with the exact amount you have in terms of liquid funds.
Your payments in will be mostly made up of sales. Your payments out will include expenses such as rent, wage, utilities, tax, and 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 businesses carry stock and need to know how much stock they should keep in stock and whether they need to purchase in bulk, like.
If you’re not planning your cash flow correctly then you’ll be unable to manage your stock on hand or make the most of the opportunity that occurs – like discounts on orders 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 warranted at any time and will help you utilize your funds to their fullest potential.
3. Be prepared for the future
If you are just beginning your career in business it is possible that the changes that come with growth can sometimes creep up on you – including the shift between being in a position to maintain your business ticking over simply and not needing to keep an eye on changing cash flow.
It is essential to plan ahead. In the event that you haven’t managed your cash flow, you might run out of stock and capable of purchasing. I’ve also witnessed corporate owners finance purchase of stocks using personal credit cards. This can result in a high-cost cycle that’s very difficult to come out of.
It is important to plan ahead in order to ensure the accuracy of budgeting for the flow of cash.
Consider things like the potential need for extra staff, or seasonal demand for inventory. Also, don’t forget to think about tax obligations including GST and PAYE – that’s an area where small companies get caught often and repeatedly.
4. Pay your bills with cash
It’s advised that small business owners pay their invoices as soon as possible.
It can be difficult to get back a late payment. Chase unpaid invoices immediately instead of let them linger.
Invoices not paid may cause serious problems for your business, affecting anything from the ability to replenish stock, to having to cut back on the advertising budget or branding.
Find out what you’re owed by reviewing your forecast for cash flows on a regular basis Each week is the ideal each month, or once at minimum. If you’re not aware of what’s happening then you’re not able to properly prepare for what’s coming up.
5. Are you feeling stuck? Do not be on your own.
Many accounting programs like Xero and MYOB has cash flow forecasting capabilities that business owners can utilize. Although it’s recommended for business owners to stay at the top of their cash flow themselves it’s not a bad idea to consider making a monthly update alongside your accountant as part of the process.
Small-scale business owners are often too busy – often their time is better spent on other aspects of their business. Accountants can assist them in planning their forecasts. Talk to your bank accountant or business lender for assistance in tackling small business growth issues before they become a problem. It’s better to get help when you realize you’ll need it, rather instead of burying your head in the sand and hope the problems will go away.
There is no need to be an accountant to create or manage the Cash flow projection. However, you must create it as a regular and consistent element of your business planning. When you’re in a time of uncertainty such as an epidemic that is spreading across the globe that is now more critical than ever before for small business owners to incorporate resilience into their business and among the most effective ways to do that is to forecast cash flow.
