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Forecasting your cashflow

Cashflow forecasting is important for businesses of any size. Let’s take a look at exactly what it is, how to go about it, and what to do if you notice an upcoming gap in your cashflow.

What is a cashflow forecast?

A cashflow forecast (sometimes known as cashflow management) is the process of predicting a business’s liquidity at any given time in the future. In other words, knowing how much cash will be available to pay the bills a week, a month, or a year from now.

Benefits of a cashflow forecast

The main benefit of cashflow forecasting is to identify points in the future when your business might not have enough cash to cover its running costs. Knowing that periods of illiquidity are coming down the track allows you to plan for them in advance.

There are a couple of other advantages too:

Plan for business growth

On the flipside, a cashflow forecast can help predict times when your business will have a cash surplus, meaning you can decide to invest or expand as you see fit.

Identify issues

A thorough cashflow forecast can help you identify issues in your business. If, for example, you notice that cashflow shortages happen due to customers not paying on time, you can take steps to fix it – like taking out a small business loan to help cover costs.

Play with alternate scenarios

It’s useful to know what effect alternate possible scenarios might have on your business. For example, you might want to see if taking on a new employee makes financial sense. An accurate cashflow forecast can shed light on whether an extra salary is sustainable or is likely to lead to cashflow shortages in the future.

How to forecast your cashflow

Before you get down to the nitty-gritty of cashflow forecasting, it’s a good idea to decide how far in advance to plan for. Established businesses have an advantage in this respect because they have many months, maybe even years, worth of historical data to draw on. If you’ve not been going long, you’ll clearly have less. And if you’re just starting up, well, you’ll just have to make educated guesses about your income and outgoings.

Whatever your situation, you should only plan as far ahead as you can accurately predict.

Once you’ve decided on the scope of your forecast, then it’s a case of the following:

List all your revenue streams

If you’re like most small businesses who work on a cash accounting basis, this part is fairly simple. For each week or month of your forecast, make a list of all your sources of income. Sales is the obvious place to start, but remember, you should only list sales revenue you expect to have in the bank.

Then it’s time to consider non-sales income. This might include:

  • Tax rebates.
  • Investment income.
  • Grants.
  • Royalties or license fees.

When you add these altogether, you’ve got what’s known as your ‘net income’.

List all your outgoings

Then it’s time to look at the other side of the ledger. For each week or month of your forecast, make a list of all your expenses. This might include:

  • Salaries (including your own if you take one).
  • Supplier payments.
  • Rent.
  • Utility bills.
  • Marketing spend.
  • Tax obligations.
  • Insurance.
  • Bank fees and charges.

Add these together to get your net outgoings.

Calculate your running cashflow

The final step is simply to subtract your net outgoings from your net income. This will result in either a positive or negative cashflow figure.

What to do if you have a gap in your cashflow?

The first thing to do in this scenario is congratulate yourself for being prepared. It’s a lot easier to deal with issues like this when you know they’re coming.

After that, you have a couple of options for cashflow finance:

  • A Business+ Unsecured Overdraft allows you to manage temporary cashflow gaps without compromising your business capacity or relationships. You can access up to $50,000 without using your assets as security, plus you only pay interest on what you use, not your total limit.
  • Or if you’re anticipating a longer-term gap (or have plans to grow), a small business loan, such as the Business+ Unsecured Loan, could be what you’re looking for. Again, you can access up to $50,000 without using your assets as security, plus a fixed interest rate means your repayments won’t change over the life of your loan.

We’re here to help

Great Southern Bank is here to help with small business solutions delivered entirely in-app.

If you’re ready to get on top of your cashflow management, you can download our free Cashflow forecast template.

For more helpful tools and tips, visit our Business Hub.

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General Advice Warning

The information provided here is general in nature. We haven’t considered your financial circumstances, needs or objectives. Consider the appropriateness of the information, before acting on it. You should ask your Tax Advisor or Accountant before you decide about products mentioned in this article. All care has been taken to prepare this content, but no warranty is given for the information provided. Neither Great Southern Bank or its related entities, employees or agents are liable for the decisions or actions you take because of this information.

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