Look Into the Future this 2016; Improving Your Cashflow ForecastingJan 1, 2016 Blog Entrepreneur , RainFin , SME
When you look forward to 2016, what do you see?
Your business growing and increasing its profits? Your income remaining steady throughout the year? Taking a hit to replace some old equipment that you need to keep running? Or is your foresight cloudy? Do you look into 2016 and struggle to see where your business might be heading?
Cashflow forecasting is one the best ways you can prepare for the coming year. We all know that cashflow problems can mean trouble for small businesses. It’s one of the most important figures for any business owner to keep track of, but it can be very easy to get wrong. And that can land you in hot water.
Here’s how to stay on top of your cashflow and do more accurate forecasting…
1. Take control of your budget
Your budget document is possibly the most important part of your forecasting process. Keeping your budget document regularly updated and ensuring that you feature everything, including fixed and variable costs, will go some way towards helping your forecasting.
Be certain not to leave anything out. Although you might not think that the odd missed postage expense here or there will make a huge difference to your numbers; these missed figures will build up over time.
2. Be realistic
In previous cashflow forecasts, how far off have you been?If you have a tendency to be over-optimistic when forecasting, stop right now. If you make any investments based on that optimism your business could face financial ruin. Erring on the side of caution will help protect your business.
3. Analyse your business indicators thoroughly
Keeping an eye on business indicators such as your sales pipeline will allow you to make more accurate cashflow predictions. If you’ve kept a diligent budget and sales record in previous years you should be in a good position to make an estimate from month to month. This will help you account for seasonality as well.Don’t forget to include any big sales or deals that may be coming up. But remember to ask yourself whether you will need to make any investments to make these deals happen. Would fulfilling a contract require you to take on another staff member? Or will you need to travel to another city to seal a deal?
These kind of insights go a long way to improving your forecasting accuracy.
4. Estimate your closures
Now you have an idea of what your sales pipeline looks like, it’s time to start thinking about when your clients will be likely to pay for your goods or services. Remember, an invoice is not income and clients may take time to pay.
5. Learn to be diligent
Clients that are slow or late to pay can bring chaos to your cashflow and many businesses have gone bust as a result of not receiving their payments on time.It’s never an enviable job to have to chase payments, but ensuring that your contract terms are clear and restated on your invoice will help you assert yourself.
6. Keep it up-to-date
Your forecast should not remain the same throughout the year (unless you really are psychic). Adjust and amend your forecast regularly if needs be. This may be in the form of extra expenses, or extra profits. It’s worthwhile comparing your cashflow forecast and your cashflow statement from time-to-time, just to review how you are doing.
Cashflow forecasting is an indispensable way of planning for your business. But if you find yourself in a situation where you need extra capital to make vital purchases, or are left hanging by a late-paying client – it’s important to have a contingency plan.
Don’t fall victim to the advertising of pay-day lenders. They might promise you a fast solution to a short-term problem, but the interest rates they offer could soon have your debts spiralling out of control. Apply for a RainFin loan and it could be approved and in your bank account the next day. With low-rates; 12, 24, 36 and 48 month repayment schedules; and no early repayment fees, we can be the support network your business needs.
Join RainFin today.