If you run a business, you need to be on top of forecasting your cash flow. Simply put, it means estimating the money coming in and money going out. By having a clear idea of revenue and expense sources, you can set your budget, financial goals and implement cost-saving tactics.
Effective communicationIrrespective of whether you run a business with a team of 5 or 500, it is important to involve the top management to receive inputs on key areas of revenue and expenses. This reduces the possibility of inaccurate forecasting. Key benefits of effective communication is the utilization of funds, or in other words – borrow only what is necessary and don’t leave any funds sitting idle.
Payment termsIf you have been in business long enough, you know you are not going to get paid on the first day of every month. Payment dates can vary anywhere between 30 and 90 days. As there will be ongoing expenses like rent and electricity, it is important to know when exactly money is coming in. Therefore, it pays to discuss payment terms with your clients from the onset.
Cost saving areasEvery business has expenses like rent, electricity, buying new computers or social evenings with your team. But when you can forecast these expenses and fit it into your budget, you can do your best to end the year with a surplus of cash. By knowing what bills are due and when they are due, you can create a forecast plan. The easiest way is to look at previous years’ expenses and map out your expense trends. Plus, when you establish an internal process for your team to inform you of new and recurring expenses, you’ll be able to adequately forecast for these too.
Have a contingency plan and be flexibleRunning a business comes with its own set of challenges, and unexpected roadblocks. For example, you might launch a new product, but discover that sales are lower than expected. Once you create a forecast, it serves to keep in mind that you might have to make changes along the way. Being flexible, and yet planning for the unexpected puts you in a strong position to overcome any unexpected surprises. To establish a contingency plan, get help from business advisors who are qualified in helping businesses thrive. But that are also experienced in your particular industry. For example, if you run an agribusiness, get help from agribusiness accountants who know your industry through and through. This is the best approach to establish a contingency plan that works for your company and industry.
Here is a bonus tip – Peace of mind!