Business is mostly about managing two things: numbers and people.
Without your numbers showing healthy financials, it’s hard to have a profitable business. And in what seems like a ‘chicken or the egg’ debate, you can’t attract and retain people – employees, customers and your suppliers – if you don’t get these numbers right.
So – where do you start?
As a Business Coach, I always tell my clients: cash flow.
Cash flow is the lifeblood of your business. The good news is that with the right tools, processes and systems, you can develop relevant cash flow forecasts to improve your business’ longevity and profitability.
In this blog, I’ll discuss the importance of cash flow forecasting and how it can improve your day-to-day decision making and ability to realise your long-term goals – all while keeping you sane!
What is cash flow in a business?
Cash flow is the amount of available, accessible “liquid” cash your business has on hand at any point in time.
You need this cash to meet all of your financial obligations, like salaries, super payments, taxes, bills and so on. Without it, your business can’t pay these when they fall due, which makes you insolvent – something that no business owner wants to happen ever.
That’s why it’s so crucial to manage your cash flow so you always know your business’ cash position is healthy.
The importance of forecasting cash flow
Just like having a strong marketing strategy is important in helping you understand why and how to attract new customers and reach a wider audience, cash flow forecasting is valuable in achieving strong financial management.
Each time my clients ask me about the importance of cash flow, I always tell them that staying on top of it will help them identify if they’re ever going to run out of money or when they’ll have surplus cash to reinvest – this way, they can always prepare ahead of time.
Having a good cash flow forecast also enables business owners like you to map out your future business plans – whether you’re thinking of recruiting new staff, moving to bigger premises or expanding into new markets.
4 ways to create a simple cash flow forecast
Cash flow is essentially the lifeblood of your business. Without it, you’ll struggle to continue running your organisation.
So, here are the 4 steps to create a simple cash flow forecast:
- Decide how far out you want to plan for.
Cash flow planning can cover any time span – from a few weeks to many months. My suggestion is to implement a weekly cash flow forecast for at least 3 months ahead.
But it depends on your business. If your pipeline is more predictable and you’re well-established with years of reliable data, you probably don’t need it to be too far into the future, whereas if your business can be unpredictable, then you want as much future insight as possible.
- Track your income.
For each week or month in your cash flow forecast, list all of your cash inflows. Have one column for each week or month, and one row for each type of income.
Just remember – this only includes the cash that’s hitting your actual bank account. Only put the figures in for when you know clients will pay invoices, or bank payments will clear.
- List all your outgoings.
Now you know what’s coming in, work out what you’ve got going out. For each week or month, make a list of all the money you’ll be spending such as rent, salaries, loans and so on. Again, these are dates and amounts when cash will be actually leaving your account.
Once you’ve listed everything you spend, add up the total for each column to get your net outgoings.
- Work out your running cash flow.
For each week or month column, take away your net outgoings from your net income. That will give you either a predicted positive cash flow figure or a predicted negative cash flow figure.
You can then keep a running total – from week to week or month to month – to get an insight into your cash flow forecast over time at a glance.
More control. Less stress.
Using these 4 steps will help you predict your day-to-day cash flow management processes and provide more control. Then, as a business owner, you won’t have to always worry if you’ll have enough cash on hand at a particular point in time.
Do you need help managing your business’ cash flow?
A comprehensive cash flow forecast will help you achieve business success and put you at ease knowing you’re not at risk of being insolvent. With this, you can organise your finances, increase your revenue and drive growth.
However, it can be difficult to get it right for your business.
Whether you need help assessing your cash flow statements, drawing up a new financial plan or simply improving your existing business strategies, I’m here to help.
As a Business Coach and Mentor, I work with business owners like you to guide you on the path towards achieving your business goals.
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