cashflow forecasting

Dos and Don’ts in Cashflow Forecasting You Should Know About

Your cashflow is the lifeblood of your company, so why are you not paying attention to it?

Cashflow forecasting is the process of analysing the inflow and outflow of money in your business within a given timeframe. Proper cashflow forecasting lets you anticipate dips and surges in your available fund so you could make the right decisions, and avoid unexpected financial hiccups.

While it may seem simple, many small business owners make cashflow forecasting mistakes that often lead to serious financial issues.

To help you get started with cashflow forecasting, here are some dos and don’ts to remember.

Do cashflow forecasting regularly

Your financial situation could change at any time — the same goes with your cashflow. Some companies perform cashflow forecasting annually. Others do it every six months.

If your business is stable, a cashflow forecasting once or twice a year may be enough. However, if your business’s performance has been unpredictable for the past months, it may be best to perform forecasting more often, like once a month or once a week.

Don’t make your cashflow forecast complicated

Forecasting doesn’t have to be complicated.  On its basic form, cashflow forecasting tracks the money that comes in and out of the business. You could start doing it on a spreadsheet. The important thing is to be as accurate as possible in recording transactions.

Be realistic, not optimistic

Yes, you  want your businesses to succeed but when it comes to forecasting, make sure not to be overly optimistic. Look at your data, check your finances. How’s the balance between your income and expenses? If your spending is high, do you have a backup plan in case profits decline in the future?

Remember that cashflow isn’t revenue

Some business owners mistake cashflow with profit. Remember, profit is what you get from sales — after you’ve taken out all the expenses related to that sale. Cashflow, on the other hand, shows liquidity — where they’re coming from and how they are used.

Don’t let unpaid invoices be left unpaid

Unpaid invoices could hurt your cashflow forecast. If you expect money to be there and it’s not there, it creates a ripple effect, even disturbing your business operation.  Make sure clients pay on time. And be diligent in paying your suppliers, too.

With proper cashflow forecasting, you’ll be confident in making financial decisions for your business. No more asking the question “where have all the money gone?”

For more information on cashflow forecasting, please fill out our contact form or call us at 02 6752 9700

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