A step by step guide to cash-flow forecasting

A quick glance:

Managing cash flow doesn’t have to be difficult, but it requires more than a glance at your bank account for business.

Controlling your cash flow allows you to profit from opportunities, such as purchasing an item that’s new, hiring extra staff, utilising a discount.

Getting paid on time is crucial to ensure cash flow so don’t let your creditors slow you down.

A heads up: checking your bank account at least once a week isn’t forecasting your cash flow.

Small business owners who are overwhelmed by the thought of creating a cash flow forecast will typically believe that only a glance over the bank account can do the trick.

It’s essential for small business owners to know that forecasting cash flow is quite straightforward and, instead of complimenting things, it can make running your business easier and the chances of succeeding higher.

These are the top tips to forecast cash flow as a professional.

1. Learn about cash flow

Put simply the cash flow calculation is based on your payments out and in which is what you owe and what you have in the bank and what you have on hand, less what you have to repay.

A cash flow forecast can show you exactly how much you have in terms of liquid funds.

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

2. Be aware of the reasons why it’s important

If you are in control on your cash flow you can manage your business more efficiently and successfully.

Many small-scale businesses have stocks, and they need to know what they need in their inventory and if they should purchase in bulk, as an example.

If you’re not forecasting your cash flow in a timely manner it will be difficult to effectively manage your stocks in the bank or profit from the opportunity that comes your way - discounts on orders like that or the possibility to buy a new item.

The cash flow outlook may assist you in understanding whether capital expenditure is possible and is warranted at any time and also help you use your money to its fullest potential.

3. Be ready for the future

As you begin your journey in business you will notice that the changes with growth might sneak over you, including the shift between being in a position to maintain the company running smoothly while keeping a close eye on fluctuating cash flow.

It is essential to plan ahead. For example, if you don’t manage your cash flow, you could end up out of stock and in a position to purchase. I’ve also witnessed business owners finance stock purchases using personal credit cards, which can be an expensive cycle that’s difficult to escape from.

Planning is crucial when it comes to successful cash flow forecasting.

Be aware of things like the need for staffing, or the seasonal demand for stocks. And don’t forget your tax obligations like the PAYE and GST. That’s one area of expense that small-sized businesses are caught by time and time again.

4. Pay your bills with cash

It is suggested that small-scale business owners collect payments for invoices as soon as they are able to.

It can be very difficult to recover a debt. Chase instalments that have not been paid promptly instead of let them linger.

Invoices that are not paid can cause serious problems for your business, affecting everything including the ability to replenish stocks to having to cut back on your branding or advertising budget.

Find out what you’re owed by checking the cash flow projection frequently Each week is the ideal, once a month at minimum. If you’re not aware of where you stand and how they’ll change, it’s impossible to make a proper plan for what’s ahead.

5. Are you feeling stuck? Don’t go it alone.

A majority of accounting software, such as Xero and MYOB includes cash flow forecasting features that business owners can benefit from. And while it is a good idea for business owners to stay at the top on their money flow themselves it’s not a bad idea to consider having a monthly report with your accountant as part of the process.

Small-scale business owners are often working enough and their time should be used on other areas of their business. Accounting professionals can assist them in planning their forecasts. Consult with your bank’s accounting professional or small-business loan provider for assistance in tackling small business growth issues before they become a problem. It’s best to seek help whenever you feel you might need it instead of sticking your head in the sand, hoping the issues will go away.

There is no need to be an accountant in order to make or oversee a Cash flow projection. However, it is important to create it as a regular and regular part of your business’s plan. In times of uncertainty, such as the global pandemic is more crucial than ever for small-scale business owners to develop resilience into their companies and one of the most powerful methods of doing this is by calculating cash flow forecasts.