Poor cash flow is one of the biggest contributors to small business failure. To beat the odds and succeed in business, it pays to conduct regular cash flow forecasts. Here’s what it should include.
What is your anticipated income?
This figure is an estimate of what you expect to bring in from sales.
Make sure you:
- Use sales data from a comparable period (e.g. use June 2019 figures for June 2020 forecast) as a guide
- Take into account seasonality or one-off events (e.g. conventions)
- Factor in current market issues (e.g. a recession or a pandemic)
- Monitor your competition. If a new competitor is taking some of your regular clientele, you may need to factor in lost market share
What are your other cash inflows?
Depending on your business, sales won’t be the only contributor to company profits.
Cash inflows can include:
- Government grants
- Proceeds from insurance
- Tax refunds
- GST rebates
- Funds from asset divestment
When will you receive payments?
This will differ from industry to industry – a retail business will have vastly different payment terms from an IT company. If you have 30-day terms, you may expect to receive payments one month after invoicing or later.
What are your expenses?
Both direct and indirect expenses should be factored into this figure. Make sure you also take into account the timing of each payment, as you probably won’t pay all outgoings on the same day.
Expenses may include:
- Employee wages and super
- Payments to suppliers
- New assets
- Overhead (ie. rent, utilities, office supplies
- Insurance
- Repairs and Maintenance
- Franchise fees
What If?
Most businesses are in a constant state of flux. Even if your cash flow remains steady for several months, an unexpected event can affect your best-laid plans. So include ‘what-if’ scenarios in your forecasting.
What if scenarios may include:
- Loss of key staff
- Rent increase
- Recession
- Damage to your physical business (ie. flood, fire, etc)
- Damage to your brand (e.g. poor reviews)
- Sudden shutdown of brick-and-mortar businesses (e.g. COVID-19)
With Opulent Accountants, not only will you have a professional bookkeeper look after your accounts, you will receive regular, simple-to-understand business reports giving you a better insight into how well your business is performing. In addition, all clients have access to our cash-flow strategies to make their business more profitable.
