A step by step guide to cash flow forecasting

In a glance:

Cash flow management does not have to be complicated, but it requires more than a quick glance at your business bank account.

Being aware of the flow of cash allows you to profit from opportunities. Think about buying a new asset, employing more staff, or utilizing discount.

Being timely paid is essential to maintain cash flow , so don’t let your creditors slow you down.

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

Small-scale business owners overwhelmed by the idea of making a cash flow forecast will often think that a quick glance at the bank account will suffice.

It’s crucial for small business owners to know that forecasting cash flow is quite straightforward and, instead of complimenting things, it can in making running your business more efficient and your odds of success greater.

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

1. Understand what cash flow is

Simply put the cash flow calculation is using your transactions in and your payments out that you owe and have in cash and what you have on hand, less what you are owed.

The cash flow projection will show you exactly how much you’ve got in the form of liquid funds.

Your payments in will be mostly made up of sales. However, your payment out will cover expenses such as rent, wage, taxes, utilities and supplier payments.

2. Find out why it is important

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

A lot of small-scale businesses keep stocks, and they need to know what they need in their inventory and whether they need to purchase in bulk, for instance.

If you’re not planning your cash flow accurately, you won’t be able to control your inventory in the bank or take advantage of a good opportunity when it is available - discounts on orders like that or the possibility to buy a new asset.

The cash flow outlook will assist you in understanding whether capital expenditures are feasible and is warranted at any time and assist in utilizing your money to its fullest potential.

3. Be ready for growth

If you are just beginning your career in business, the changes that come with growth might sneak into your life – for example, the shift away from keeping the business ticking over simply and then needing to keep watch on fluctuations in cash flow.

It’s critical to plan ahead. If, for instance, you haven’t managed your cash flow, you could run out of stock and in a position to purchase. I’ve also witnessed people who finance their stock purchases on personal credit cards, which can be an expensive cycle that’s hard to break out of.

Planning is crucial when it comes to accurate budgeting for the flow of cash.

Take into consideration things like the requirement for additional staff, or seasonal demand for stocks. And don’t forget 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. You can use the Chase option to make your payments

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

It is often difficult to get a payment that is not paid. Chase the invoices that are not paid immediately instead of letting them drag out.

Invoices that are not paid can be a major problem for your business, affecting anything from the ability to replenish stocks, to having to reduce your branding or advertising budget.

Be aware of what you owe by checking in with your cash flow forecast regularly Each week is the ideal every month, at a minimum. If you don’t know the current situation, you can’t properly prepare for what’s coming up.

5. Do you feel stuck? Don’t try to solve it on your own.

The majority of accounting software such as Xero and MYOB provides cash flow forecasting capabilities that entrepreneurs can make use of. While it’s recommended for business owners to be aware in their financial situation but there’s nothing wrong with doing a monthly update with your accountant part of the process.

Small business owners are busy enough – sometimes their time can be better spent on other aspects of their businesses. Accounting experts can help organise their forecasting. Consult with your bank’s accounting professional or small-business loan provider to find solutions to problems with growing a small business before they become a problem. It’s better to seek assistance whenever you feel you’ll need it, rather instead of sticking your head in the sand hoping your problems will disappear.

It doesn’t require an accountant to prepare or manage the budget for your cash flow. However, it is important to make it a frequent and regular part of your business’s planning. When you’re in a time of uncertainty such as the global pandemic that is now more critical than ever for small-scale business owners to build resilience into their business and One of the most effective ways to do that is by calculating cash flow forecasts.