Small business owners are often faced with stressful financial decisions and periods of uncertainty. Having a cash flow forecast can help your business avoid cash shortages by allowing you to track whether your spending is on target, prepare for business expansion, plan for upcoming cash gaps and plan budgets. Here are some tips on cash flow forecasting to help your business be in control of its finances.
Prepare a sales forecast
Existing businesses can look at past years' sales figures, taking note of busy and quiet periods, and prepare an income prediction based on historical trends. If you're a new business, you can start by making cash outflow estimates. This can help you plan for what sales you should aim for to cover this and make estimates of predicted sales.
Knowing how much money you'll have in a week or a month is central to being able to budget and know when to pay your expenses. Whether you receive customer payments at the time of sale, or you receive payments based on a subscription or service, you can schedule expenses and budget based on payment periods.
Account for other income forms
Your business may generate income from sources other than customers. Having an estimate of what income you'll receive and when allows you to refine your budget and plan around payments. These income sources could include:
Estimate your expenses
Your cash flow forecast should include all your predicted expenses, giving you a detailed outline of the amount you'll spend and when to help you determine a budgeting schedule and avoid cash shortages. Expenses to consider in your forecast include:
Update and refine your forecasts
As your business grows and evolves, your financial situation may change. To keep your projections on track and as accurate as possible, update your cash flow forecast regularly to account for any miscalculations, unpredicted expenses or income and business changes. Taking a few moments every month or so will keep you prepared and prevent you from being caught off guard by a sudden cash-flow crisis.
