A step by step guide to cash-flow forecasting

A quick glance:

Controlling cash flow doesn’t have to be difficult however, it takes more than a quick glance at your company’s bank account.

Being aware of the flow of cash lets you take advantage of valuable opportunities – think buying an item that’s new, hiring additional employees, or making use of the discount.

Getting paid on time is critical to maintaining cash flow . Don’t let your debtors drag.

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

Small-scale business owners who are overwhelmed by the thought of creating the cash flow forecast frequently believe that just a glance at the bank account will suffice.

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

Below are some of our best suggestions to forecast cash flow like a pro.

1. Know what cash flow is.

Put simply it’s a calculation of cash flow using your transactions into and out - what you are owed and have in cash less what you have to pay.

A cash flow forecast will reveal exactly how much you’ve got in the form of liquid funds.

Your payments in will be predominantly comprised of sales, while your cash outs will also include costs such as rent, wage, tax and utilities as well as supplier payments.

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

When you have a handle on your cash flow you can run your business effectively and efficiently.

Many small-scale businesses have stock and 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 correctly it will be difficult to effectively manage your stocks on hand or take advantage of the opportunity that is available - for instance, a price reduction on an order such as, for example or the possibility to purchase a new asset.

An accurate cash flow projection could aid you in determining the possibility of capital expenditure and warranted at any moment and also help you use your funds to their fullest potential.

3. Be ready for the future

If you are just beginning your career in business, the changes that come as growth are often able to creep up on you – including the transition from being able to keep the business ticking over simply and not needing to keep a close eye on fluctuating cash flow.

It’s crucial to think ahead. For example, if you don’t manage your cash flow you can end up out of stock and in a position to purchase. I’ve also seen businesses finance stock purchases on personal credit cards. This can result in a high-cost cycle that’s very difficult to come out of.

It is important to plan ahead in the process of accurate financial forecasting.

Consider things like the potential demand for more staff or seasonal demand for inventory. Don’t forget about your tax obligations like the PAYE and GST. That’s one expense area that small businesses get caught out every now and again.

4. Chase your payments

It is recommended that small-scale business owners collect payments for invoices as quickly as they can.

It is often difficult to get back a late payment. Chase instalments that have not been paid promptly rather than letting them drag out.

Invoices that aren’t paid can sometimes be a major problem for your business, affecting anything from replenishing stocks, or cut back on your branding or advertising budget.

Find out what you’re owed by checking in with your forecast for cash flows on a regular basis 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 plan for what’s ahead.

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

Many accounting programs like Xero and MYOB provides cash flow forecasting features that business owners can benefit from. And while it is recommended for business owners to stay on top on their money flow themselves, there’s nothing wrong with having a monthly report with your accountant part of the process.

Small-scale business owners are often already busy enough. Sometimes their time should be focused on other aspects of their business. Accounting professionals can assist them in planning their forecasts. Consult with your bank’s accountant or small business lender to find solutions to small business growing pains before they become a problem. It’s best to seek help immediately if you think that you’ll require it instead of burying your heads in the sand, hoping things will get better.

There is no need to be an accountant to develop or oversee an accurate financial forecast for cash flows. However, it is important to create it as a regular and regular part of your business planning. In uncertain times such as the global pandemic and a global pandemic, it’s more essential than ever before for small business owners to incorporate resilience into their businesses and One of the most powerful methods of doing this is by calculating cash flow forecasts.