A step by step guide to cash flow forecasting

A quick glance:

Cash flow management needn’t be complicated but it’s more than an occasional glance at your business’s bank account.

Controlling cash flow enables you to benefit from lucrative opportunities. Think about buying an item that’s new, hiring more staff, or utilizing discounts.

Getting paid on time is essential to maintain the flow of cash, so don’t allow your debtors drag.

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

Small-scale business owners overwhelmed by the thought of preparing a cash flow forecast will often think that a quick glance at the bank account can do the trick.

It’s essential for small business owners to understand that forecasting cash flow is simple and, rather than complicating things, can in making running your business more efficient and the chances of succeeding higher.

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

1. Learn about cash flow

Simply put it’s a calculation of cash flow based on your payments into and out - what you are owed and what you have in the bank and what you have on hand, less what you owe.

An cash flow prediction will reveal exactly how much you have in the way of available liquid funds.

Your cash inflows will be predominantly comprised of sales. Your payments out will be based on expenses like wages, rent and tax and utilities as well as supplier payments.

2. Find out why it is important

If you can keep a grip of your cash flow, you are able to run your business more efficient and effectively.

Small businesses often have stocks and must know how much they should have in stock and whether they should buy in bulk, as an example.

If you’re not forecasting your cash flow correctly then you’ll be unable to control your inventory on hand , or take advantage of an opportunity that arrives – such as a discount on an order such as, for example or being able to purchase a new asset.

A cash flow forecast will aid you in determining whether capital expenditures are feasible and is warranted at any point and assist in utilizing your money to its fullest potential.

3. Be ready to expand

When you start out in business and grow, the changes that come with growth might sneak into your life – for example, the shift from being able to keep the company running smoothly while keeping an eye on the fluctuation of cash flow.

It is essential to plan ahead. For example, if you’ve not managed your cash flow, you might find yourself in a stock shortage and not be being able to buy. I’ve also witnessed business owners finance purchase of stock using personal credit cards. This can result in a high-cost cycle that’s difficult to get out of.

It is important to plan ahead in order to ensure successful cash flow forecasting.

Consider things like the potential need for staffing, or seasonal demand for stocks. 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 often and repeatedly.

4. Chase your payments

It is advised that small business owners collect payments for invoices as quickly as they can.

It can be very difficult to recover an outstanding payment. Chase instalments that have not been paid promptly instead of letting them drag out.

Unpaid invoices can sometimes have a serious impact on your business, impacting everything from the ability to replenish stocks to having to reduce your branding or advertising budget.

Be aware of what you owe by reviewing an annual cash flow plan every week Each week is the ideal each month, or once at the very least. If you’re not aware of where you stand it’s difficult to think about what’s to come.

5. Are you stuck? Don’t go it alone.

Many accounting programs like Xero and MYOB offers cash flow forecasting features that business owners can benefit from. Although it’s a good idea for business owners to be on top of their cash flow but there’s nothing wrong with making a monthly update alongside your accountant part of the process.

Small business owners are working enough and their time could be better used on other areas of their businesses. Accounting experts can help organise their forecasting. Consult with your bank’s accountant or small company loan provider for help with small business growth issues before they become an issue. It’s better to get help whenever you feel you might need it instead of burying your head in the sand hoping things will get better.

It doesn’t require an accountant to develop or manage an accurate Cash flow projection. However, you must create it as a regular and consistent part of your business’s plan. In times of uncertainty, such as a global pandemic, it’s more important than ever before for small business owners to build resilience into their companies and among the most effective methods to achieve this is cash flow forecasting.