A quick guide to cash flow forecasting

A quick glance:

Controlling cash flow should not be difficult but it’s more than just a few glances at your company’s bank account.

A good understanding of the flow of cash lets you take advantage of valuable opportunities – think buying an asset that is new, hiring more staff, or utilizing a discount.

Paying on time is crucial to ensure cash flow , so don’t let your creditors slow you down.

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

Small business owners who are overwhelmed by the idea of making the cash flow forecast often think that just a glance at the bank account can do the trick.

It’s important for small entrepreneurs to be aware that cash flow forecasting is quite straightforward and, rather than complicating things, can help simplify running your business and your chance at success greater.

Below are some of our best recommendations to forecast cash flow as a professional.

1. Learn about cash flow

Put simply it’s a calculation of cash flow based on your payments in and your out that you owe and have on hand, less what you have to pay.

A cash flow forecast will give you an exact estimate of how much you have in terms of liquid funds available.

Your inflows into your account will be predominantly comprised of sales, while your cash outs will also include costs such as rent, wage, tax and utilities 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 efficiently and profitably.

Many small businesses carry stocks, and they need to know how much they should have in their inventory and whether they should buy in bulk, for instance.

If you’re not planning your cash flow properly, you won’t be able to control your inventory on hand , or make the most of the opportunity that occurs – like the possibility of a sale on an order such as, for example or the possibility to buy a new asset.

A cash flow forecast may assist you in understanding whether capital expenditure is possible and is warranted at any time, and help use your funds to their fullest potential.

3. Be prepared for the future

As you begin your journey in business and grow, the changes that come from growth may sneak over you, including the transition from being able to keep the company running smoothly and then needing to keep a close eye on fluctuating cash flow.

It’s crucial to think ahead. If, for instance, you’ve not managed your cash flow, you may be out of stock and able to purchase. I’ve also witnessed business owners finance stock purchases using personal credit cards. This can be a costly cycle that’s hard to break out of.

It is important to plan ahead when it comes to the accuracy of planning for cash flows.

Be aware of things like the need for staffing, or the seasonal demand for stock. Also, don’t forget to think about tax obligations including the PAYE and GST. That’s one of the areas where small-sized companies are caught often and repeatedly.

4. Chase your payments

It is suggested that small-scale business owners pay their invoices as quickly as they can.

It isn’t easy to get back a late payment. Chase accounts that are unpaid immediately instead of taking them off.

Invoices not paid may cause serious problems for your business, affecting everything from your ability to replenish stocks, or cut back on your branding or advertising budget.

Be aware of what you owe by checking your cash flow forecast regularly Each week is the ideal every month, at a minimum. If you’re not sure where things stand it’s difficult to think about what’s to come.

5. Are you stuck? Don’t try to solve it on your own.

Most accounting software like Xero and MYOB has cash flow forecasting capabilities that entrepreneurs can make use of. Although it’s recommended to keep business owners on top in their financial situation but there’s nothing wrong with having a monthly report with your accountant part of the process.

Small-scale business owners are often already busy enough. Sometimes their time can be better spent on other aspects of the business and accountants can assist them in planning their forecasts. Talk to your bank accountant or small business loan provider for assistance in tackling small business growth issues before they become a problem. It is better to seek help immediately if you think you might need it instead of burying your head in the sand hoping your problems will disappear.

There is no need to be an accountant in order to make or oversee the budget for your cash flow. But you do need to make it a frequent and constant part of your business plan. In uncertain times such as the global pandemic and a global pandemic, it’s more essential than ever for small business owners to build resilient businesses. And one of the more powerful methods of doing this is by calculating cash flow forecasts.