A quick guide to cash-flow forecasting

In a glance:

The management of cash flow need not be complicated however, it takes more than a glance at your bank account for business.

Getting a handle on the flow of cash lets you take advantage of valuable opportunities such as buying new equipment, hiring additional employees, or making use of discount.

Being timely paid is essential to maintain the flow of cash, so don’t allow your debtors hold you back.

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

Small business owners overwhelmed with the idea of creating a cash flow forecast will often convince themselves that only a glance over the bank account will suffice.

It is crucial for small-scale entrepreneurs to be aware that cash flow forecasting is easy to understand and, rather than complicating things, can in making running your business more efficient and your chances of success higher.

Here are our top tips for forecasting cash flow like a pro.

1. Learn about cash flow

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

An cash flow prediction will give you an exact estimate of how much you have in the way of available liquid funds.

Your payments in will be mostly made up of sales. Your payments out will include expenses such as rent, wage, taxes, as well as supplier payments.

2. Learn why it’s important

If you can keep a grip on your cash flow you can run your business efficiently and profitably.

Small businesses often have stocks and must know what they need available and whether they need to purchase in bulk, like.

If you’re not forecasting your cash flow correctly and accurately, you’ll not be able to effectively manage your stocks on hand , or get the most out of an opportunity that occurs – like the possibility of a sale on an order, for instance, or being able to purchase a brand new asset.

An accurate cash flow projection can provide you with an understanding of whether capital expenditure is feasible and warranted at any time and will help you utilize your funds to their greatest potential.

3. Be ready to grow

If you are just beginning your career in business you will notice that the changes from growth may sneak over you, including the shift from being able to keep your business running without much effort and then needing to keep an eye on changing cash flow.

It is essential to plan ahead. If, for instance, you’re not managing your cash flow, you might end up running out of stocks and be able to purchase. I’ve also seen businesses finance purchase of stock using personal credit cards, which can be an expensive cycle that’s very difficult to get out of.

Planning ahead is essential in order to ensure successful financial forecasting.

Consider things like the potential demand for more staff or the seasonal demand for stocks. And don’t forget your taxes, which include GST and PAYE – that’s one area of expense that small-sized businesses are caught often and repeatedly.

4. Pay your bills with cash

It is advised that small business owners pay their invoices as quickly as they can.

It is often difficult to recover a debt. Chase unpaid invoices immediately instead of letting them drag out.

Unpaid invoices can sometimes be a major problem for your business, affecting anything from the ability to replenish stocks to having to reduce your advertising or branding budget.

Find out what you’re owed by reviewing your cash flow forecast on a regular basis - each week is ideal, once a month at a minimum. If you’re not certain of where things stand it’s difficult to plan for what’s ahead.

5. Are you stuck? Don’t be alone.

A majority of accounting software, such as Xero and MYOB includes cash flow forecasting capabilities that entrepreneurs can make use of. Although it’s recommended for business owners to stay at the top the flow of cash but there’s nothing wrong with creating a monthly update along with your accountant in the process.

Small business owners are too busy – often their time is better focused on other aspects of their businesses. Accounting experts can assist with their forecasting. Speak to your bank’s accountant or business lender to find solutions to small business growth issues before they become a problem. It’s best to seek help when you realize that you’ll require it instead of burying your head in the sand and hope the issues will go away.

You don’t have to be an accountant in order to make or manage the cash flow forecast. However, you must ensure it is a regular and constant part of your business plan. During uncertain times like an outbreak in the world that is now more critical than ever for small-scale business owners to incorporate resilient businesses. And one of the most effective methods of doing this is cash flow forecasting.