Develop a Cash Flow Forecast
All businesses need to manage their cash flow so they have enough money to pay the bills when they come in. If you’re not in control of your cash flow, minor problems can escalate and you may find yourself in financial difficulty. Even profitable businesses have gone under because of cash-flow problems.
Cash-flow forecasting is an extension of your budget, but income and expenditure are allocated against a time frame and you don’t follow accrual accounting principles. In other words, you record cash when it comes in and goes out, not when you send the invoice or order the supplies. Most small businesses will find a monthly cash-flow forecast adequate, but if your business has a large number of transactions, you may prefer a weekly or fortnightly forecast.
At the end of the period, record your actual figures against the forecast to see how your finances are tracking. Spotting potential cash-flow problems in advance can help you act quickly to avert financial difficulties. When creating a cash-flow forecast for the first time, look at previous budgets and bank statements to see if there is a clear pattern of income and expenditure. Then consult your current budget to see if, and when, you anticipate making major expenditures.
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