We’re working with simPRO Software to bring you all sorts of tips to help you run your business successfully. Here, they share their four top tips for creating a good cash flow forecast to help you stay on top of your finances.
Maintaining positive cash flow is crucial for trade businesses of any size, and running out of cash is a major barrier to businesses being successful. To ensure you stay on top of your finances and avoid a cash crisis, you should be projecting your cash flow, which basically means predicting when money will move in and out of your bank account in the future.
Here are four simple ways to ensure your cash flow projections are realistic.
Be a pessimist
It’s easy to fall into the trap of being overly optimistic and forecasting far more revenue than you’ll receive. As a result, you might spend money you don’t have, which is the first sign of an impending cash flow problem.
Avoid this situation by assuming the worst and hoping for the best. Imagine the economy will fall apart and your best customer will go broke.
If you excel and beat your forecasts, that’s the time to add in some more expenses.
Keep an eye on the economy
When it comes to forecasting your cash flow, remember one simple truth: nobody operates separately to the economy.
Keep your eye on the bigger picture through subscribing to updates from economic forecasting agencies and businesses like banks to understand how economic fluctuations may affect you. You can also do this by keeping an eye on the news. The Financial Times carries out an annual survey with economists and you’ll find info across a lot of newspaper company websites, filed under sections like market, business UK news.
For most trade businesses, tracking consumer sentiment is the best way to understand what their spending intentions may be over the coming months.
Factor this into your projections.
Talk to an accountant
Never underestimate the importance of fresh, well-trained eyes on your cash flow projections. Many small businesses rely on their accountant to just ‘do the books’ and make sure everything is in order. But looking back at what has already happened isn’t taking full advantage of their expertise. Involve an accountant in the process of looking forward too.
Budget for surprises
That one-off cost that comes from nowhere can really rattle a business. Plan for the unexpected, like needing to replace your van, and deal with an unforeseen problem much more easily.
Put a small amount away each month in a ‘rainy day’ emergency fund and have peace of mind knowing you’re better prepared to overcome any crisis that may arise.
A cash flow forecast is one of the most important aspects of your business plan. A realistic forecast can show you if your business has enough cash to run or expand, or if more cash is going out of the business than in. Following these simple tips can help you create a forecast for your business that is realistic and highly valuable.
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