A quick guide to cash-flow forecasting
A quick glance:
Cash flow management needn’t be difficult, but it requires more than a glance at your company’s bank account.
Getting a handle on the flow of cash lets you take advantage of valuable opportunities, such as purchasing new equipment, hiring extra staff, utilising a discount.
When you pay on time, it is critical to maintaining the flow of cash, so don’t allow your debtors slow you down.
Beware: checking your bank account at least once a week doesn’t mean you’re forecasting cash flow.
Small business owners who are overwhelmed by the thought of preparing an annual cash flow forecast often think that just a glance at their bank account will be enough to get the job done.
It’s crucial for small business owners to know that forecasting cash flow is simple and, instead of complimenting things, can help in making running your business more efficient and your chance at success greater.
Here are our top advice to forecast cash flow like a pro.
1. Learn about cash flow
Put simply it’s a calculation of cash flow using your transactions into and out and what you are owed and have in cash in cash, less the amount you have to pay.
Cash flow estimates can reveal exactly how much you’ve got in terms of liquid funds.
Your inflows into your account will be mostly comprised of sales. However, your payments out will include expenses such as rent, wages, tax and utilities as well as supplier payments.
2. Find out why it is important
If you can keep a grip on your cash flow , you can run your business more efficient and effectively.
Many small-scale businesses have stocks and must know what they need available and whether they need to purchase in bulk, as an example.
If you’re not planning your cash flow accurately, you won’t be able to manage your stock available or get the most out of an opportunity that arrives – such as for instance, a price reduction on an order like that or the possibility to buy a new item.
An accurate cash flow projection may help you understand whether capital expenditure is possible and is warranted at any time and will help you utilize your money to its fullest potential.
3. Be ready to grow
If you are just beginning your career in business and grow, the changes that come with growth can sometimes creep in on you. This includes the shift from being able to keep your business running without much effort and then needing to keep an eye on the fluctuation of cash flow.
It’s essential to prepare ahead. If, for instance, you’re not managing your cash flow, you might run out of stock and not in a position to purchase. I’ve also witnessed businesses finance purchase of stocks using personal credit cards. This can result in a high-cost cycle that’s difficult to come out of.
Planning ahead is essential in order to ensure effective cash flow forecasting.
Take into consideration things like the need for staffing, or the seasonal demand for inventory. Don’t forget about your tax obligations , including VAT and PAYE. This is one of the areas where small-sized companies are caught by time and time again.
4. Pay your bills with cash
It is recommended that small-scale entrepreneurs collect their payments for invoices as soon as possible.
It can be very difficult to recover a debt. Chase instalments that have not been paid promptly instead of letting them drag out.
Invoices that aren’t paid can sometimes cause serious problems for your business, impacting everything including the ability to replenish stocks, or cut back on your advertising or branding budget.
Find out what you’re owed by reviewing the cash flow projection frequently Every week is ideal each month, or once at minimum. If you don’t know where things stand it’s difficult to prepare for the future.
5. Are you feeling stuck? Don’t be alone.
Many accounting programs like Xero and MYOB includes the capability of forecasting cash flow that entrepreneurs can make use of. And while it is beneficial for business owners to stay at the top in their financial situation themselves but there’s nothing wrong with having a monthly report with your accountant in the process.
Small-scale business owners are often working enough and their time can be better to be spent on other aspects of their business. Accounting professionals can help organise their forecasting. Speak to your bank’s accountant or small company lender for assistance in tackling the growing issues of small businesses prior to them becoming a problem. It’s best to seek help as soon as you think you may need it rather instead of burying your heads in the sand and pray that the issues will go away.
You don’t need to be an accountant to develop or manage the Cash flow projection. However, it is important to ensure it is a regular and consistent part of your business planning. When you’re in a time of uncertainty such as the global pandemic that is now more critical than ever before for small business owners to incorporate resilient businesses. And One of the most powerful methods to achieve this is through cash flow forecasting.
