There’s a lot going on, isn’t there?
Rising interest rates, high inflation and Brexit related trade-barriers on the one hand, but full employment, the stock market reaching record highs, and signs that inflation could be coming under control on the other.
Who’d try and run a business through all this?
Oh, you would (and so would I)!
Our new best friend, the cashflow forecast
As small business owners, we are constantly faced with challenges, the most important one of which is maintaining a positive cashflow.
A cashflow forecast won’t magic up money that didn’t previously exist, but it will help you manage the financial health of your business.
The forecast estimates how much cash will be coming in and going out of your business over a specified period of time, and when it will happen. In turn, it will show you if you are going to have enough money in the bank at any given point.
Having this information available can help you avoid any financial bumps in the road and make informed decisions about taking on new overheads, paying creditors, borrowing money, and generally managing your business finances.
A cashflow forecast should incorporate factors that are relevant to your business, such as how long your customers typically take to pay you, how much stock you need to hold and how quickly you need to pay suppliers.
Profit is sanity
Alongside your cashflow forecast, it is also important to create and regularly review a profit and loss (P&L) forecast.
Your P&L forecast sets out how much profit or loss you are on track to make, and takes into account your income and expenses, including overhead costs and interest. You can read more about your Profit and Loss account here.
Around the forecast, you can prepare a budget. The budget provides you with a helicopter view of your business’s finances and helps you set and monitor individual lines in your sales performance and overheads. This should give you more control over your outgoings and profit margins.
The importance of re-forecasting
But creating a forecast isn’t a “once-and-done” job.
Re-forecasting, or updating your budgets and forecasts, is as important as creating them in the first place.
Re-forecasting allows you to revise your plans based on new information and circumstances. The end result is a new, fully revised budget that provides a more relevant decision-making tool.
You should re-forecast whenever there is a significant event that affects your cashflow, such as winning or losing a large contract.
Of course, your forecasts are only as reliable as the assumptions and data you put into them. If your data is inaccurate, your forecasts will be wrong, so consider re-forecasting if trends indicate that your original forecast was inaccurate or if the assumptions behind it were incorrect.
Easier said than done? No
The frequency of re-forecasting will depend on the resources available to manage the process and the specific needs of your business. And to the resources, you are probably saying “there’s only me”!
That’s why we created CaFE. Think of it as artificial intelligence for your cashflow. Plug in your cloud accounting software, and CaFE will automatically generate a cashflow forecast and budget for you.
You can accept the forecasts as they are, or use the projections as a starting point and fine tune them based on factors you know about, or scenarios you want to model.
And the best bit? No more spreadsheets! CaFE will automatically update your forecasts based on your actual performance and show you how far from your original forecast you are at any point.
In conclusion, as small business owners, we need to have a solid understanding of our finances in order to manage the financial health of our businesses and ensure their long-term success.
You can do it the hard way with spreadsheets, or the easy way with CaFE.
I know which one I prefer ?
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