Why Your Business Needs to Forecast Cash Flow
There are plenty of things that business owners must consider when striving towards success. While many focus on keeping up staff productivity, creating effective marketing campaigns, and improving sales, others tend to put financial management in the back burner. However, ensuring that your enterprise is in good financial standing is crucial to meeting your goals, which is why forecasting cash flow is incredibly important.
Gold Coast accountants agree that cash flow is one of the crucial components that affect the survival of your small business. Sometimes, the time gap between the invoices you send out and the date you receive payment can even make or break your business. Regardless of your profit margin, your company must practice good cash flow management; otherwise, you’ll be running your business with a significant risk of sinking.
The Importance of a Cash Flow Forecast
Small to medium business owners must continue to be strategically agile and adaptive in a highly volatile economic environment, especially when factoring in a high Australian dollar. In 2011, more than 3,000 business reportedly became insolvent according to D&B’s Business Failures and Start-ups Analysis. One of the most common causes of insolvency is poor cash flow management.
Additionally, small businesses that had fewer than 20 employees reported the highest rate of closure, which is over twice the failure rate of larger enterprises. With the rapid changes experienced by the world today because of the global health crisis and the ensuing economic recession, cash flow planning is even more critical in your business’s survival.
Understanding a Cash Flow Forecast
To build a cash flow forecast, you must first understand it. Also known as a cash budget, it is a tool that helps small businesses monitor their cash flows while doubling as a plan for periods where expenses overtake profit. A cash flow forecast can help your business with both short-term and long-term planning, especially when you want to expand your business.
The small business website of the New South Wales Government recommends dividing your cash flow forecast into three main categories. The first is day-to-day operating activities, which includes your staff payments, expenses, and sales income receipts. The second is your investment activities, such as the purchase of equipment or properties. The third is your financing activities, like loans and repayments. If you’re struggling with ironing this out, business accountants in the Gold Coast can help you navigate this.
Building a Cash Flow Forecast
Creating a cash flow forecast is tricky, especially for entrepreneurs who aren’t financially savvy. Luckily, bookkeeping services in the Gold Coast can help you provide crucial documents that you must review every month, such as your balance sheet and profit and loss statements. Doing this will help you understand the financial position of your business, allowing you to make the appropriate decisions.
Every week, you must review your accounts receivable and payable, your cash flow forecast on an Excel spreadsheet, and your purchase orders, which you need to fill out before incurring expenses. You can use a simple layout for your cash flow forecast, but if you’d like to ensure a comprehensive and seamless spreadsheet, hiring a business accountant will take care of this aspect for you.
Reliable cash flow forecasting will help keep your business stable and steady even in times of economic turmoil. Expensive and unwelcome surprises often cripple a small business, which makes it essential to prepare yourself as much as possible. When you have prior warning of any cash shortfalls, you’ll have the advantage of preparing in advance to protect your business, especially with the guidance of business accountants.
New Wave Accounting is one of the best Gold Coast accounting firms that have financial professionals specialising in small business accounting. We provide end-to-end accounting and bookkeeping services that are sure to help your business scale and grow. Contact us today to find out how we can help you!