A step by step guide to cash flow forecasting

At a glance:

Controlling cash flow doesn’t have to be difficult however, it takes more than a quick glance at your bank account for business.

Being aware of cash flow enables you to take advantage of valuable opportunities – think buying a new asset, employing extra staff, utilising a discount.

Paying on time is essential to maintain cash flow . Don’t let your debtors slow you down.

Heads up: looking at your bank account every week isn’t a way to forecast your cash flow.

Small-scale business owners overwhelmed by the thought of creating an annual cash flow forecast typically believe that a quick glance at the bank account can accomplish the task.

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

These are the top suggestions for forecasting cash flow like a pro.

1. Understand what cash flow is

Simply put it’s a calculation of cash flow according to your payment into and out which is what you owe and have in cash in cash, less the amount you have to repay.

An cash flow prediction will provide you with the exact amount you have in terms of liquid funds.

Your cash inflows will be predominantly comprised of sales. Your cash outs will also include costs like wages, rent and tax and utilities as well as supplier payments.

2. Know why it matters

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

A lot of small-scale businesses keep stocks and must know how much stock they should keep in stock and if they should purchase in bulk, like.

If you’re not forecasting your cash flow accurately it will be difficult to control your inventory in the bank or profit from the opportunity that arrives – such as a discount on an order like that or the ability to purchase a new asset.

Forecasting cash flows may help you understand the possibility of capital expenditure and warranted at any moment, and help use your funds to the maximum potential.

3. Be prepared to expand

As you begin your journey in business you will notice that the changes from growth may sneak into your life – for example, the change of being capable of keeping your firm running at a steady pace, to needing to keep watch on fluctuations in cash flow.

It is essential to plan ahead. In the event that you’re not managing your cash flow you can end up out of stock and in a position to purchase. I’ve also witnessed businesses finance stock purchases using personal credit cards, which can result in a high-cost cycle that’s hard to get out of.

Planning is crucial in order to ensure successful financial forecasting.

Take into consideration things like the need for staffing, or the seasonal demand for stocks. Don’t forget about your tax obligations , including GST and PAYE – that’s one area of expense that small businesses get caught out every now and again.

4. You can use the Chase option to make your payments

It is advised that small entrepreneurs collect their payments for invoices as soon as they are able to.

It is often difficult to get back a late payment. Chase the invoices that are not paid immediately instead of waiting for them to accumulate.

Invoices not paid may be a major problem for your business, impacting everything from replenishing stocks, to having to cut back on your branding or advertising budget.

Be aware of what you owe by reviewing an annual cash flow plan every week Every week is ideal each month, or once at a minimum. If you’re not certain of the current situation and how they’ll change, it’s impossible to make a proper think about what’s to come.

5. Are you stuck? Don’t go it alone.

Many accounting programs like Xero and MYOB includes the capability of forecasting cash flow that business owners can use. While it’s recommended to keep business owners at the top in their financial situation it’s not a bad idea to consider creating a monthly update along with your accountant as part of the process.

Small business owners are too busy – often their time should be focused on other aspects of their business. Accountants can help organise their forecasting. Consult with your bank’s accountant or small company lender for help with small business growth issues before they become an issue. It is better to seek help when you realize you may need it rather instead of burying your head in the sand and hope the problems will go away.

It doesn’t require an accountant to develop or oversee an accurate financial forecast for cash flows. However, you must make it a frequent and regular part of your business’s plan. During uncertain times like the global pandemic, it’s more important than ever for small entrepreneurs to instill resilience into their businesses and among the most powerful methods of doing this is by calculating cash flow forecasts.