Formal cash flow forecasting is common practice for conscientious business owners as it’s a great way to budget each financial year.
However, developing a forecast can be more complex than simply stating your likely monthly outgoings and income. With the many internal and external variables that can contribute to the growth or decline of your enterprise, provisioning for these in your forecast can be difficult. So here are our top three tips to help make your next forecast as accurate as possible:
1. Construct or apply a proven a template
Developing a template to include your cash flow information is the first step to budgeting and managing anything unpredictable that could influence your final forecast. By separating your income and payments into each month you can then review those elements that are consistent in your statement, such as filing fees, bank charges and other fixed costs.
This can be your own DIY effort in Excel. But if you are starting from scratch or need to improve results, it may make sense to enlist the help of your accountant who will have access to more sophisticated cash flow tools that can better depict your forecasting.
2. Identify common trends or causes that could potentially impact your forecast
Learn to recognise variables in your cash flow forecast that can be affected because of trends and then flag them based on how they will be positive or negatively impacted.
A good place to start is by reviewing your previous forecasts and the past trends that were significant in previous years. For example, sales may be seasonal based on the product or service you are selling, or you may observe that particular market or economic announcements impact your business every year.
3. Plan for all possible scenarios and outcomes
In order to confirm the accuracy of your cash flow forecast be certain to prepare for the best, most likely and worst case scenarios that any irregular conditions might have on your final forecast. Effectively you will have two or three final cash flow statements with which to work that will prepare you for all eventualities.
Ineffective cash flow can be a common symptom of business failure. Although your cash flow forecast will never guarantee complete accuracy, it should provide an effective indication of how funds are likely to come and go throughout the financial year.
Survival in today’s business climate requires you to spend more time working on your business rather than in the business.
OBT can provide you with accurate, timely and informative cash flow forecasting tools allowing you to develop action strategies to improve your bottom line. Call us on 07 5462 2277 to get started.