Why It’s Important for Your Business to have Its Own Forecast on Cashflow – and How to Create One

cashflow

Cashflow is a term that is often used, but very few startups pay adequate attention to it. And when you think about it, cashflow is not just about seeing a positive bank balance at the end of the month – it’s about understanding where your money goes and where your money comes from, and then optimising this knowledge in order to reduce your costs and create new avenues for gain. A smooth cashflow can come, but only with thorough analysis and smart forecasting. Here, then, are some handy tips on how to help you realise the full potential of a healthy cashflow.

Have a plan and make it visual

Having a plan is an essential part of doing business, but it’s only a plan – and, as we all know, nothing goes exactly according to plan. After a few months, however, a business owner should already have a good idea of how money is going out and coming in.

By listing all expenses and income carefully – and then charting this and making it visual, you, as a business owner, are more likely to intuitively understand what your business is all about, how the cashflow truly runs, and how similar or different reality is from the plan that was formed. By examining everything closely, you can readjust your plan and focus on areas that are important: cutting costs, creating more income, and simplifying procedures. Have a plan but make it visual.

Make use of your payment options

A general rule of thumb is this: delay payment of bills until the last minute. This may seem like an irresponsible thing to do for the novice business owner, and some may argue that since you have to pay anyway, there’s no use delaying until the last moment. But we’re not talking about irresponsible behaviour – we’re simply talking about making the most of your allowed time and exploring all your options.

If you can pay only after 30 days, make use of those 30 days to generate more income. If your supplier allows you to pay in three installments, take the opportunity and use the funds otherwise spent to improve your customer base. One word of warning, though: have discipline and make sure you do indeed pay your bills on time!

Focus on income

Make sure you get paid as soon as possible – you might even consider offering discounts to those customers who are willing to settle their bills immediately. Offering a discount is just a small reward for the risk that you avoid. Always be clear and meticulous with your invoices as well – mention, in certain terms, what amount is due, and when. And if a customer is late, be prompt in sending reminders.

Forecasting is key

An important part of growing a business is to develop a model and to create a plan. Using experience and gained information, you can project cashflow in the future and come up with a realistic plan. By being able to predict your expenses and income in the future, you can prioritise and lay down a specific plan of action. Think ahead. Forecast and make improvements based on that.

Cashflow is the lifeblood of a business, and being able to forecast months from now will ensure that the actions you take today will prepare your business for success tomorrow. Forecasting has become an essential tool in accurate and feasible planning. If you would like to enhance your forecasting even further by making sure you have available cash on hand at all times, you can turn to cashflow experts such as www.ultimatefinance.co.uk for all your cashflow needs.

Image courtesy of pixtawan/ FreeDigitalPhotos.net

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