A step by step guide to cash flow forecasting

A quick glance:

Controlling cash flow does not have to be complicated, but it requires more than a glance at your bank account for business.

Getting a handle on the flow of cash lets you benefit from lucrative opportunities – think buying a new asset, employing additional staff, or taking advantage of discounts.

Being timely paid is crucial to ensure cash flow , so don’t let your creditors drag.

Beware: checking your bank accounts once a week doesn’t mean you’re forecasting cash flow.

Small-scale business owners overwhelmed by the thought of preparing the cash flow forecast often think that only a glance over the bank account can suffice.

It’s essential for small business owners to understand that forecasting cash flow is simple and, rather than complicating things, it can make running your business easier and your chance at success greater.

These are the top recommendations for forecasting cash flow as a professional.

1. Learn about cash flow

Simply put it is based on your payments in and your out - what you are owed and have in your account, less what you have to repay.

The cash flow projection can provide you with the exact amount you have in terms of liquid funds available.

The money you pay in will mostly comprised of sales. However, your payments out will be based on expenses like wages, rent and taxes, utilities and supplier payments.

2. Learn why it’s important

If you are in control on your cash flow , you are able to run your business more efficiently and successfully.

A lot of small-scale businesses keep stocks, and they need to know what they need available and whether they should buy in bulk, like.

If you’re not planning your cash flow properly then you’ll be unable to manage your stock on hand or take advantage of the opportunity that comes your way - a discount on an order, for instance or being able to purchase a new asset.

A cash flow forecast can assist you in understanding the possibility of capital expenditure and warranted at any time and will help you utilize 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 as growth are often able to creep up on you – including the shift between being in a position to maintain the firm running at a steady pace while keeping a close eye on fluctuating cash flow.

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

It is important to plan ahead in the process of the accuracy of budgeting for the flow of cash.

Consider things like the potential need for extra staff, or seasonal demand for stock. Also, don’t forget to think about tax obligations , including VAT and PAYE. This is one expense area that small-sized businesses are caught every now and again.

4. Chase your payments

It is suggested that small-scale entrepreneurs collect their payments for invoices as quickly as they can.

It can be difficult to get a payment that is not paid. Chase unpaid invoices immediately instead of let them linger.

Unpaid invoices can sometimes affect your business, affecting everything from replenishing stocks, or cut back on your advertising or branding budget.

Find out what you’re owed by checking in with your cash flow forecast frequently Every week is ideal, once a month at a minimum. If you’re not certain of where things stand it’s difficult to prepare for what’s coming up.

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

The majority of accounting software such as Xero and MYOB offers cash flow forecasting features that business owners can benefit from. While it’s beneficial for business owners to stay at the top the flow of cash There’s nothing wrong with doing a monthly update with your accountant in the process.

Small-scale business owners are often too busy – often their time is better spent on other aspects of their businesses. Accounting experts can assist them in planning their forecasts. Speak to your bank’s accountant or business loan provider to get help addressing problems with growing a small business prior to them becoming a problem. It’s better to get help as soon as you think you’ll need it, rather instead of sticking your head in the sand hoping your problems will disappear.

You don’t need to be an accountant to create or manage a budget for your cash flow. But you do need to make it a frequent and consistent part of your business plan. When you’re in a time of uncertainty such as a global pandemic and a global pandemic, it’s more essential than ever before for small entrepreneurs to instill resilience into their businesses and One of the most powerful methods to achieve this is by calculating cash flow forecasts.