Manage Your Business With A Cash Flow Forecast
Let’s cut to the chase! If you don’t know how much you have coming in and going out, how can you effectively manage your business affairs? You need a system that can track all the earnings and expenses to minimise any surprises along the way. Failure to plan will only add extra stress. Therefore keep on top of your cash flow with an easy to prepare cash flow forecast.
When businesses fail, it is usually down to one thing – lack of cash flow. If your business grows too big too quickly, then cash flow can be strained. You will soon find that the cash which is going out exceeds the money going in. And trust us, that is definitely not a good thing. Many organisations fail to take into account the extra spending that comes with business growth. That can be a huge issue as too little cash flow can be the cause of bankruptcy and permanent business closure.
Positive Cash Flow
Positive cash flow does not occur by accident. It happens because all the pieces are carefully managed through the cash flow management system. Choosing practices such as regular invoicing of customers is a huge help in ensuring a steady flow of money in and out.
A cash flow forecast is something which needs to be regularly monitored. As new clients are added, then it stands to reason that your cash flow forecast will need to be updated. The same goes if there is an increase in staff, expense or inventory. Before you enter into any significant financial commitment, check your cash flow to guarantee you have the resources you need to make it happen.
A cash flow forecast should be prepared for either a six or twelve month period, although it needs to be regularly updated for any increases in expenses and additional earnings.
Creating Your Cash Flow Forecast
So what should you include in your cash flow forecast?
Note any expenses such as rent, wages, electricity bills, phone bills, etc. – both actual and forecasted if you intend for change during the specified period. Then look at the money you have coming in – again both actual and forecasted. Include the bank balance at the start of the period while at the same time forecasting the bank balance at the end of the period.
Thanks to your cash flow forecast, you will soon find that you have better grip and understanding of your business. This will will ultimately help you to make better decisions to assist your business in the long-term.