Essentially, cash flow has to do with how quickly and efficiently a business takes in cash from clients and creditors versus the rate in which it takes out money for the day-to-day survival and development of the enterprise. Efficient cash flow management can spell the difference between a business firm that’s successfully doing both and one that gets suffocated in debt and payments way before the green flows into its coffers. Here are some important tips from Meredith Wood at FOX Business news when it comes to predicting your cash flow:
Before you can focus your energy and resources on things like compensation and remuneration, you should first identify your cash inflow – this way you won’t have to put away more than you can receive within a certain period. Do this by looking at your past sales history, preferably going as far back as two or three years ago, looking for patterns that might emerge, and make your prediction based on the data.
Next, it’s time to think outflow – make a database of all the expenses that your company incurs within a certain period (for calculation purposes, you can make the time frame the same as for the inflow). Separate the list between fixed and variable, and define each item, whether it be rent, employee salary, payment to debtors, as well as whatever your variable payments might consist of.
Here are some tips from Fox Business writer Meredith Wood on putting the numbers together:
“To begin, add in an opening bank balance, then you simply add in whatever your revenue is (minus expenses) for whatever time periods you’re looking to forecast (weekly, monthly, and so on).
When you first create a cash flow forecast, be sure to revisit and update it based on how your business has actually been performing. Staying on top of your cash flow forecast will help insure accuracy when moving forward.
Although cash flow forecasts do take some time, and you might question its effect on your bottom line, the most important thing for business is analyzing and predicting cash flow. Cash is what makes your business run, and if you don’t stay in control of what cash is coming into your business and what cash is leaving it, you might find yourself in trouble.”
You can also rely on dependable cash flow management software to ensure that you get the numbers as accurate as possible and stay in control. Software products, such as the Cash Flow Mojo® software, could even help you in tasks like budgeting, sales and income planning, calculating accounts receivable, and, of course, in helping you effectively manage cash flow.
(Source: 4 Tips for Accurate Cash Flow Forecasting, Fox Business)