A quick guide to cash flow forecasting

At a glance:

Managing cash flow need not be difficult however, it takes more than a quick glance at your company’s bank account.

Getting a handle on your cash flow allows you to take advantage of valuable opportunities. Think about buying a new asset, employing additional staff, or taking advantage of discount.

Getting paid on time is vital to keep cash flow . Don’t let your creditors hold you back.

A heads up: checking your bank account at least once a week isn’t cash flow forecasting.

Small business owners overwhelmed with the thought of preparing the cash flow forecast often convince themselves that just a glance at the bank account will be enough to get the job done.

It’s essential for small business owners to know that cash flow forecasting is very simple and, rather than complicating things, can help make running your business easier and the chances of being successful is higher.

These are the top recommendations to forecast cash flow like a pro.

1. Know what cash flow is.

In simple terms, cash flow is calculated using your transactions in and your out and what you are owed and have in cash and what you have on hand, less what you owe.

An cash flow prediction will show you exactly how much 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, wages, taxes, as well as supplier payments.

2. Learn why it’s important

If you have a grasp on your cash flow , you are able to run your business more effectively and efficiently.

A lot of small-scale businesses keep stock and need to know how much stock they should keep in stock and whether they need to purchase in bulk, as an example.

If you’re not planning your cash flow correctly, you won’t be able to manage your stock on hand or make the most of opportunities when it comes your way - the possibility of a sale on an order for instance or the ability to buy a new asset.

Forecasting cash flows could provide you with an understanding of whether capital expenditure is feasible and is warranted at any point and assist in utilizing your funds to their greatest potential.

3. Be ready to grow

As you begin your journey in business, the changes that come with growth can sometimes creep up on you – including the change away from keeping the business ticking over simply and not needing to keep watch on fluctuations in cash flow.

It’s essential to prepare ahead. For example, if you haven’t managed your cash flow, you could run in a stock shortage and not be able to purchase. I’ve also seen businesses finance stock purchases using personal credit cards, which can result in a high-cost cycle that’s difficult to break out of.

Pre-planning is also important for the accuracy of budgeting for the flow of cash.

Take into consideration things like the requirement for additional staff, or the seasonal demand for inventory. And don’t forget your tax obligations , including the PAYE and GST. That’s one of the areas where small businesses get caught out repeatedly.

4. Chase your payments

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

It can be difficult to get back a late payment. Chase unpaid invoices immediately instead of taking them off.

Invoices that aren’t paid can sometimes affect your business, affecting everything from the ability to replenish stocks to having to reduce your branding or advertising budget.

Make sure you know what you’re due by reviewing your forecast for cash flows regularly - each week is ideal each month, or once at minimum. If you’re not certain of the current situation then you’re not able to properly prepare for the future.

5. Do you feel stuck? Don’t go it alone.

Many accounting programs like Xero and MYOB offers cash flow forecasting capabilities that business owners can benefit from. While it’s beneficial for business owners to be on top in their financial situation themselves There’s nothing wrong with having a monthly report with your accountant in the process.

Small business owners are too busy – often their time could be better focused on other aspects of their business. Accounting professionals can assist with their forecasting. Consult with your bank’s accountant or business lender to get help addressing small business growth issues before they become an issue. It’s better to seek assistance as soon as you think you’ll need it, rather instead of burying your head in the sand, hoping the problems will go away.

You don’t need to be an accountant to create or oversee an accurate budget for your cash flow. But you do need to make it a regular and constant part of your business plan. In times of uncertainty, such as an epidemic that is spreading across the globe and a global pandemic, it’s more essential than ever before for small entrepreneurs to instill resilient businesses. And among the most powerful ways to do this is to forecast cash flow.