cash is the lifeblood of every business which makes forecasting it an essential
skill now use this quick guide to cashflow forecasting
to help ensure your forecasts are as accurate and reliable as possible now
despite this cash flow forecast things still isn't used as often as it should
be in many businesses and has often carried out in ways which make their
findings more ambiguous than accurate fortunately there are ways to make
cashflow forecasting easier and valuable to get to grips with
in the business owners toolbox the humble cash flow forecast is a well-worn item like a
builder's spirit level or tape measure its pulled out on a regular basis where
over the business to size up the tasks ahead of them so what is a cash flow
in a nutshell cash flow forecasts the inflow and outflow of cash
in any given period like next month or financial quarter or year and the cash
surplus or deficit that should be left over at the end of that period
its essentially a predicted cash book that can act as the basis for calculating how
much money cash you need month by month to keep your business going now this is
your working capital the money you depend on to bridge the gap between
paying suppliers and receiving payments it's the lifeblood of any business
however cash flow forecasts can also help you make day-to-day decisions a
cash flow forecast can help you assess things like future business overdraft
requirements whether you should increase or decrease customers credit terms
supplier payment terms to negotiate if cash flow will be slow for example you
want more time to pay suppliers it'll give you and point out actions for
you to take if your margins are reduced by unexpected overheads or if sales
begin to lower but perhaps the greatest value of cash flow forecasting comes
from its benchmarking quality setting the levels at which your business needs
to operate in terms of costs pricing purchasing markup etc after the period
you've forecasted is ended you can then go back and compare it to the actual
results to judge the performance of your business and identify unexpected cash
flow issues so you can remain in greater control in the future this benchmarking
process also helps you to identify how seasonal your business is so you can
make your stock turnover and marketing strategies more targeted more specific
your cash flow forecast should be
completed for each month remember to take into account any seasonal aspects
of your business as well as cash payment cycle issues in other words you may get
a lot of business in June but you pay for it in August if you're in retail you
may buy a large amount of product and september/october but not get the sales
until December Christmas time
if you have any problems forecasting or understanding your numbers in the
forecast you should definitely talk to your accountant your business coach or
your business mentor the structure of a cash flow forecast is very simple it's
just like a cash book the big differences under each month you should
also include an expected column as well as an actual column so you can go back
after the period has taken place to benchmark actual and budgeted figures
now incoming cash well that's your cash and categories that's coming in while a
outgoing cash the same cash that's going out for payments it's important to
tailor the components to your business so if you find a category of cash
payment relative to your business that isn't
included make sure you add it in the same with payments
you may well ask what constitutes cash that's a good question for the purposes
of a cash flow you need to look at immediate income and outgoings as well
as the more periodic movements GST for example is something you may need to pay
every two or six months depending on your cycle so it can be classed as a
cash expense but things like interests on savings that may have little
influence on your cash position on a weekly or monthly basis and cant be
accessed quickly to draw funds from relation be included while the structure
of a cash flow forecast is important the quality of the data that goes into it is
more paramount if you have previous trading history to go on the forecasting
process is way more easier you can take reliable data from previous training
periods and increase or decrease the amounts depending on your insights into
future markets but accuracy is the key say for example there's a lot of talk
about the economy getting worse or turning a corner don't be too quick to
make any blanket assumptions talk to your customers your suppliers find out
the confidence in your sector specifically and then check your
findings with a credible accountant with experience in your industry and let them
help you fine-tune the data the more effort you place into dispelling assumptions
now the more accurate your cash flow forecast will be some of the very
popular accounting software packages available in New Zealand have their own
cash flow module within them that can work with actual results both past and
present to get very accurate forecasting details
and perhaps you should have a talk to your accountant about those
once you complete your cash flow forecast you'll either find you're
heading towards a cash surplus or a cash deficit position if it's the latter
don't panic it's actually a good thing you've spotted this now when you have
time to adjust course if the cash shortfalls you have identified are
greater than your overdraft facility talk to your banker and your accountant
they will need to work with you to help further identify the sources of your
cash shortfalls and the solutions that you can use to reduce or eliminate them
regardless of your findings you should review your completed cash flow
forecasts regularly insert actual figures once available and
investigate any discrepancies between actual figures and budgeted figures based on
your forecast it's all about staying in financial control so you know the
direction your business is going in while reducing the likelihood of
encountering any unexpected financial bumps on the way that way you'll be more
profitable and more successful hey thanks again for watching if you want to
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