The magic of cash flow forecasting

Lack of planning and control of cash resources is one of the most commonly sited reasons for failure for many small businesses in Australia. But good forecasting can help reduce your business risk, big time!

Much like a map helps you plan a long road trip, a financial forecast helps you control your money so you are more likely to achieve your goals and get your business to where you want it to be.

A cash flow forecast is a tool that helps you control the cash flow of your business instead of it controlling you. It’s a summary of the cash that comes into and goes out of your business on a monthly basis.

The format can differ but always shows:

Looking at all of these items together for each monthly period will give you a clear picture of your businesses financial situation at given time.

Knowing how much cash you have available in the business at any given time allows you to quickly see the flow of cash, and will help you to make better, more informed business decisions.

How do I forecast my business’ cash flow?

To forecast the flow of cash in and out of your business you need to workout how much money will be coming into, and going out of the business, e.g. sales, purchases, capital items.

You can make estimates based on previous activity. For example, are there seasonal peaks for your business that always affect cash flow? If so, look at past months and years to work out how much of a percentage increase in sales cash to include in those peak months.

How do I get control of my cash flow?

Ask yourself the following two questions to get a sense of whether you have your business’ cash flow situation under control:

1. What is my cash balance right now?

2. What do I expect my cash balance to be six months from now?

If you can’t answer these two questions then you don’t have it under control and you need to act now or your business could be in real trouble.

One way to keep it under control is to track your results every month to see if your business is creating the right type of cash flow. This also helps you get better at creating reliable cash flow projections as you make business decisions about growing your business and paying expenses.

Want to know more?

We can help with all your bookkeeping needs. Call us today for a chat and a free bookkeeping analysis for your business. We’re in Adelaide Australia on 1300 900 938 or email us here.