A step by step guide to cash-flow forecasting

At a glance:

Controlling cash flow doesn’t have to be complicated, but it requires more than an occasional glance at your business’s bank account.

Controlling your cash flow allows you to make the most of opportunities. Think about buying an asset that is new, hiring additional staff, or taking advantage of discount.

Being timely paid is vital to keep cash flow so don’t let your creditors drag.

A heads up: checking your bank account once a week isn’t a way to forecast your cash flow.

Small business owners overwhelmed with the idea of creating the cash flow forecast typically believe that a quick glance at the bank account can be enough to get the job done.

It’s essential for small entrepreneurs to be aware that forecasting cash flow is very simple and, instead of complimenting things, it can to make managing your business simpler and your chance at being successful is higher.

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

1. Know what cash flow is.

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

An cash flow prediction can reveal exactly how much you’ve got in terms of liquid funds available.

Your payments in will be mostly comprised of sales, whereas your payment out will cover expenses like wages, rent and utilities, tax, and supplier payments.

2. Know why it matters

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

Many small-scale businesses have stock and need to know how much stock they should keep on hand and if they should purchase in bulk, for instance.

If you’re not forecasting your cash flow in a timely manner, you won’t be able to control your inventory on hand , or get the most out of a good opportunity when it comes your way - the possibility of a sale on an order like that or the ability to buy a new item.

A cash flow forecast can assist you in understanding whether capital expenditure is feasible and is warranted at any point and also help you use your funds to their fullest potential.

3. Be prepared to grow

When you start out in business and grow, the changes that come with growth might sneak into your life – for example, the transition from being able to keep your firm running at a steady pace and not needing to keep an eye on changing cash flow.

It’s crucial to think ahead. For example, if you’re not managing your cash flow, you could end up running out of stocks and be being able to buy. I’ve also witnessed corporate owners finance purchase of stock using personal credit cards, which can result in a high-cost cycle that is difficult to escape from.

Planning is crucial in the process of successful budgeting for the flow of cash.

Take into consideration things like the need for staffing, or the seasonal demand for stocks. Also, don’t forget to think about taxes, which include GST and PAYE – that’s an area where small businesses get caught out often and repeatedly.

4. You can use the Chase option to make your payments

It’s advised that small business owners pay their invoices as fast as they can.

It isn’t easy to get a payment that is not paid. Chase unpaid invoices immediately instead of taking them off.

Invoices that are not paid can cause serious problems for your business, affecting everything from the ability to replenish stocks, or reduce your advertising or branding budget.

Make sure you know what you’re due by reviewing the cash flow projection every week every week every month, at minimum. If you’re not aware of the current situation then you’re not able to properly plan for what’s ahead.

5. Do you feel stuck? Don’t be alone.

A majority of accounting software, such as Xero and MYOB includes the capability of forecasting cash flow that business owners can utilize. And while it is recommended to keep business owners at the top of their cash flow themselves it’s not a bad idea to consider doing a monthly update with your accountant as part of the process.

Small business owners are already busy enough. Sometimes their time could be better focused on other aspects of their business. Accounting professionals can assist in organising their forecasts. Consult with your bank’s accountant or small company loan provider for assistance in tackling problems with growing a small business before they become a problem. It’s better to seek assistance whenever you feel you might need it than to bury your head in the sand hoping the problems will go away.

You don’t have to be an accountant in order to make or manage an accurate cash flow forecast. However, you must create it as a regular and consistent part of your business planning. In times of uncertainty, such as a global pandemic and a global pandemic, it’s more essential than ever before for small entrepreneurs to instill resilience into their business and among the most powerful methods of doing this is to forecast cash flow.