Mastering your business’s financial health: A simple guide to cashflow forecasting

In business, having a strong hold over your business’s financial health is essential. It’s how you can stay in control, navigate unexpected challenges, and build a reserve for a rainy day. One crucial way of doing this is cashflow forecasting. 

But what is cashflow forecasting? How do you do it? And what can you use it for? Let’s take a look.

Understanding cashflow forecasting

Cashflow forecasting involves estimating the amount of cash that will come in and out of your business over a specific period. Specifically, it involves analysing historical data and current trends to create a projection of your future cashflow. 

Usually, a business will create multiple projections, each one based on a different assumption – a slower summer than usual, for example, or a busier Christmas selling period than last year. 

Why cashflow forecasting matters

Accurate cashflow forecasting is essential for several reasons:

  • Informed decision-making: By knowing your future cash position, you can make better decisions regarding investments, expenses, and business expansion with renewed confidence.
  • Anticipating challenges: With a good forecast, you can better anticipate and prepare for potential cash shortages, ensuring you have the necessary funds to meet financial obligations and avoid liquidity crises.
  • Ensuring a steady cashflow: By proactively managing cash inflows and outflows, you can maintain a consistent cashflow, providing stability and resilience to your business operations.

How to create a cashflow forecast

Creating a cashflow forecast is no simple task, which is why it’s mostly done by professionals. Nevertheless, here’s the basic idea:

  1. Gather relevant data: You can begin by collecting historical financial data, including sales revenue, expenses, accounts receivable, and accounts payable. 
  2. Identify cash inflows and outflows: Next, you should categorise your sources of cash inflows (e.g., sales, loans, investments) and outflows (e.g., rent, payroll, utilities) to understand the primary drivers of your cashflow.
  3. Project future cashflows: Use your historical data and current market trends to estimate future cash inflows and outflows. When making projections, consider factors such as seasonality, economic conditions, and industry trends.
  4. Account for timing: Also, make sure to consider the timing of cash transactions, such as when you receive payments from your customers or when bills are due. This ensures accuracy in your cashflow forecast.
  5. Monitor and adjust: Finally, you should regularly monitor your actual cashflow against your forecasted amounts and adjust your projections as needed based on changes in business conditions or unexpected events.

Create forecasts

There are two main tools that can help you create cashflow forecasts easier. The first is software like QuickBooks, Xero or FreshBooks, which are cloud-based programs that can easily create cashflow forecasts for you based on the data it holds on your business. 

The second is consulting with an accountant or financial professional who can create a cashflow forecast for you. That way, you put your focus entirely where it should be – on your business. 

At Total Accounting, we offer both options to support your financial planning. Our team is skilled in using the latest accounting software to provide you with accurate, up-to-date forecasts. Additionally, our experienced accountants can work with you directly to develop a tailored cashflow strategy that aligns with your business goals. With our comprehensive services, you can ensure your business remains financially healthy and prepared for the future.

Let Total Accounting take the complexity out of cashflow forecasting so you can concentrate on what you do best—growing your business. Contact us today to find out how we can support your financial planning needs.

If you need help creating cashflow forecasts, get in touch with us. We’ll see how we can help. 

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