A quick guide to cash-flow forecasting

In a glance:

Controlling cash flow should not be complicated but it’s more than a glance at your company’s bank account.

A good understanding of the flow of cash lets you benefit from lucrative opportunities such as buying a new asset, employing additional employees, or making use of discount.

Being timely paid is critical to maintaining cash flow so don’t let your debtors drag.

Beware: checking your bank account once a week isn’t cash flow forecasting.

Small-scale business owners who are overwhelmed by the idea of creating an annual cash flow forecast often think that a quick glance at the bank account will suffice.

It’s important for small business owners to realize that forecasting cash flow is very simple and, instead of complimenting things, can help simplify running your business and your chance at being successful is higher.

Here are our top recommendations for forecasting cash flow as a professional.

1. Learn about cash flow

Simply put, cash flow is calculated by calculating your cash flow based on the amount you pay out and in and what you are owed and have on hand, less what you have to pay.

An cash flow prediction will provide you with the exact amount you’ve got in terms of available liquid funds.

Your payments in will be mostly comprised of sales. However, your payments out will be based on expenses such as rent, wages, utilities, tax, and supplier payments.

2. Learn why it’s important

If you can keep a grip on your cash flow , you are able to run your business more efficiently and profitably.

Small businesses often have stocks, and they need to know how much they should have available and whether they can purchase in bulk, for instance.

If you’re not forecasting your cash flow accurately it will be difficult to manage your stock in the bank or get the most out of the opportunity that is available - discounts on orders for instance or the possibility to purchase a brand new asset.

An accurate cash flow projection will provide you with an understanding of whether capital expenditure is possible and is warranted at any point and also help you use your funds to their fullest potential.

3. Be ready to expand

As you begin your journey in business it is possible that the changes that come with growth might sneak into your life – for example, the change of being capable of keeping the firm running at a steady pace, to needing to keep an eye on changing cash flow.

It’s critical to plan ahead. In the event that you’re not managing your cash flow, you might end up running out of stocks and be able to purchase. I’ve also seen people who finance their purchase of stocks using personal credit cards. This can be an expensive cycle that’s very difficult to come out of.

It is important to plan ahead for successful cash flow forecasting.

Consider things like the potential need for extra staff, or the seasonal need for stock. Also, don’t forget to think about tax obligations like VAT and PAYE. This is one of the areas where small-sized companies are caught repeatedly.

4. Chase your payments

It’s advised that small business owners pay their invoices as soon as possible.

It can be very difficult to get back a late payment. Chase unpaid invoices immediately rather than waiting for them to accumulate.

Unpaid invoices can sometimes affect your business, affecting anything from your ability to replenish stock, to having to reduce the advertising budget or branding.

Know what you’re owed by reviewing the cash flow projection frequently - each week is ideal, once a month at minimum. If you don’t know where things stand and how they’ll change, it’s impossible to make a proper prepare for what’s coming up.

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

Many accounting programs like Xero and MYOB offers cash flow forecasting capabilities that entrepreneurs can make use of. And while it is beneficial for business owners to be in control in their financial situation it’s not a bad idea to consider making a monthly update alongside your accountant in the process.

Small-scale business owners are often working enough and their time can be better focused on other aspects of their business. Accounting professionals can help organise their forecasting. Contact your bank’s accountant or small business lender to get help addressing small business growth issues before they become an issue. It’s best to seek help whenever you feel 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 prepare or oversee the Cash flow projection. But , you should make it a frequent and constant part of your business planning. In uncertain times such as a global pandemic, it’s more important than ever for small-scale entrepreneurs to instill resilience into their businesses and one of the most effective ways to do this is through cash flow forecasting.