A step by step guide to cash flow forecasting

In a glance:

The management of cash flow shouldn’t be difficult however it’s more than a quick glance at your business’s bank account.

Controlling the flow of cash lets you profit from opportunities – think buying an item that’s new, hiring extra staff, utilising a discount.

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

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

Small-scale business owners overwhelmed by the idea of making an annual cash flow forecast often think that only a glance over the bank account will do the trick.

It’s crucial for small business owners to realize that forecasting cash flow is very simple and, rather than complicating things, it can to make managing your business simpler and the chances of success greater.

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

1. Know what cash flow is.

In simple terms it’s a calculation of cash flow according to your payment in and your out and what you are owed and have in your account and what you have on hand, less what you have to repay.

A cash flow forecast can provide you with the exact amount you have in the way of liquid funds.

Your payments in will be mostly comprised of sales. However, your payments out will include expenses like rent, wages, taxes, utilities and supplier payments.

2. Learn why it’s important

When you have a handle of your cash flow, you can manage your business more effectively and efficiently.

Many small businesses carry stocks, and they need to know how much they should have on hand and if they should purchase in bulk, as an example.

If you’re not planning your cash flow accurately, you won’t be able to control your inventory on hand or take advantage of an opportunity that arrives – such as discounts on orders for instance or the ability to buy a new item.

An accurate cash flow projection could provide you with an understanding of whether capital expenditure is possible and warranted at any moment and assist in utilizing your funds to the maximum potential.

3. Be ready for growth

If you are just beginning your career in business it is possible that the changes that come as growth are often able to creep up on you – including the shift away from keeping your business running without much effort while keeping an eye on the fluctuation of cash flow.

It’s critical to plan ahead. For instance, if you don’t manage your cash flow, you could run running out of stocks and be being able to buy. I’ve also witnessed corporate owners finance purchase of stocks using personal credit cards. This could be a costly cycle that’s very difficult to come out of.

It is important to plan ahead when it comes to effective planning for cash flows.

Think about things like the need for extra staff, or seasonal demand for stock. Be sure to take note of your tax obligations including PAYE and GST – that’s one area of expense that small-sized companies are caught by time and time again.

4. Chase your payments

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

It isn’t easy to recover a debt. Chase the invoices that are not paid immediately instead of taking them off.

Invoices not paid may have a serious impact on your business, affecting everything from the ability to replenish stock, to having to reduce the advertising budget or branding.

Be aware of what you owe by checking in with an annual cash flow plan frequently Every week is ideal and once per month at a minimum. If you don’t know where you stand, you can’t properly prepare for what’s coming up.

5. Feeling stuck? Do not be on your own.

Most accounting software like Xero and MYOB includes the capability of forecasting cash flow that business owners can utilize. Although it’s beneficial for business owners to be in control of their cash flow themselves There’s nothing wrong with making a monthly update alongside your accountant as part of the process.

Small business owners are already busy enough. Sometimes their time should be spent on other aspects of their business. Accountants can assist with their forecasting. Speak to your bank’s accounting professional or small-business loan provider for assistance in tackling small business growing pains before they become an issue. It is better to seek help as soon as you think that you’ll require it than to bury your head in the sand, hoping your problems will disappear.

It doesn’t require an accountant in order to make or oversee the cash flow forecast. However, it is important to make it a frequent and regular part of your business’s planning. In uncertain times such as an outbreak in the world is more crucial than ever for small-scale entrepreneurs to instill resilience into their business and one of the more effective ways to do this is to forecast cash flow.