Small Business Cash Flow: Maximize Your Cash 7: Don’t Neglect Cash Flow Forecasts

This is a big one and it applies to all industries of all sizes. If you don’t make a frequent and regular cash flow forecast, you won’t be able to see if disaster is coming, nor will you be able to know how much surplus cash you might have available to pay dividends or invest in acquisitions or security. -Add projects.

A good cash flow forecast will be frequent, detailed, and accurate. You will likely look forward weekly for the next two months, then monthly for the next three or four months, or something like that.

It will have the appropriate underlying details. At the first glance of the forecast, you may say “customer receipts,” but below those numbers may be the full list of pending invoices, unbilled sales, and forecast sales. “Vendor payments” must be divided sensibly; For example, some are best shown separately, like rent payments and health insurance, but the balance can be shown as biweekly payments.

Quick Tip: Be careful with VAT if you are working from your income statement or income statement to produce the forecast. Receipts and payments include VAT, and then you have a separate VAT payment a couple of months later, but in profit and loss sales and expenses do no They include VAT.

The goal is to stand out when the bank balance becomes a concern. And if it appears to drop below zero (or the agreed overdraft limit) in a few weeks, then you can make decisions now to improve that. You can take a closer look at customer accounts or decide to delay some tax or vendor payments for a short period. If I didn’t have a forecast I could only see what I should have doneand not what I should do. Not having a forecast eliminates all your options in managing cash.

I once worked with a small business that was in trouble. We went in and produced a revised cash flow forecast that showed the company was running out of cash in four months. We updated the forecast weekly, using an updated list of aging debtors for receipts and using the profit and loss budget for expenses, which were fairly consistent. It allowed us to make decisions about which payments we were going to prioritize week by week, depending on how quickly our clients paid us. We knew which customers we expected money from and when, so we could go after them very quickly. Ultimately, the clear forecast focused the minds of the board and gave them a time scale to try and save the business. And the focus on details allowed us to keep the business up and running for more than two months longer than we originally expected, and the business was successfully sold as a going concern.

Ask your accountant or accountant to help you try it.