Cash flow forecasting tips to help your business stay on track

Managing cash flow is one of the biggest challenges for businesses, and it’s also one of the most important. Even if you’re turning a profit, running out of cash can cause serious problems. You may need these cash flow forecasting tips.

That’s where cash flow forecasting comes in! A good forecast helps you anticipate shortfalls before they happen, make informed decisions, and keep your business moving in the right direction. Here are some straightforward yet effective tips to help you get started:

The quality of your forecast depends heavily on the quality of your data. Be as accurate as possible when inputting figures, and don’t just rely on rough estimates or wishful thinking.

Start with what you know, historical data on income and expenses, and then adjust for upcoming changes. Are you planning to take on new staff, open another location, increase your prices, or invest in marketing? Will you have any large, one-off costs, such as tax bills or equipment upgrades?

Being realistic often means being cautious. It’s usually safer to underestimate expected income and overestimate expenses. That way, you’re prepared for the unexpected and less likely to be caught off guard.

This cash flow forecasting tip is an important one! Your forecast might show that you’re owed thousands, but if that money hasn’t hit your account yet, it’s not helping your cash flow. One of the easiest ways to improve your cash position is simply to invoice quicker.

Delays in issuing invoices often lead to delays in payment. Make it a habit to send invoices immediately after the work is completed or goods are delivered. Better still, use accounting or invoicing software that can automate this process and send reminders to clients before due dates.

You could also consider adjusting your payment terms. For example, instead of 30-day terms, try 14 days, or ask for deposits or staged payments for larger projects.

For most businesses, a monthly cash flow forecast is enough to keep things on track. However, if you’re operating with a tight cash buffer, have highly variable income, or are going through a period of uncertainty (like a big expansion or an economic downturn), you may benefit from creating weekly forecasts.

Weekly forecasts offer more granular insight and allow you to respond quickly to emerging issues. For example, if a big client delays payment by just a few days, a weekly forecast can help you see whether that will affect your ability to pay staff or cover rent.

Remember to include all fixed and variable costs: such as VAT payments, salaries, rent, supplier bills, and loan repayments.

Very few businesses operate with completely consistent cash flow year-round. If you’re in a seasonal industry, such as hospitality, events, retail, or construction, it’s essential to forecast for both busy periods and quieter spells.

Look back at your financial records from previous years. Do you notice any patterns in sales? Are there certain months where expenses tend to spike? Are there periods when clients pay late, or suppliers demand more upfront?

By identifying these patterns, you can plan for them and avoid surprises. For example, you might arrange additional finance ahead of a slow period or delay a big purchase until you’re expecting more income.

Cash flow forecasting doesn’t just involve looking at what you’ve billed, it’s about when the money actually arrives. Late payments are a common issue, especially for small businesses and freelancers.

Make sure your forecast reflects your real-world payment cycle. If your customers typically take 45 days to pay a 30-day invoice, build that into your timeline.

It also helps to actively manage your receivables:

• Set clear payment terms upfront.
• Send reminders before and after due dates.
• Follow up on late payments with a firm but friendly tone.
• Consider offering discounts for early payment or charging interest on overdue accounts (as allowed under the UK’s Late Payment of Commercial Debts Act).

It’s easy for small costs to add up and chip away at your cash flow without you noticing. Subscriptions, software, equipment leases, office supplies, these all add to your outgoings and may not always be delivering value.

Take time every few months to review all your regular expenses. Are you still using everything you’re paying for? Could you get a better deal from another supplier? Are you paying for duplicate services?

Streamlining your outgoings can free up valuable cash and improve your financial resilience.

Even the best forecasts can’t predict everything. A client might cancel a contract. A tax bill could be higher than expected. Equipment might break unexpectedly.

That’s why it’s essential to include a cash buffer in your forecast. This safety net allows you to weather small shocks without panic or resorting to costly short-term borrowing.

Ideally, aim to hold enough cash to cover at least one to three months of essential expenses. If that’s not feasible right now, make it a goal to build towards over time.

Scenario planning can also help. Build a few versions of your forecast: one for the best case, one for the worst case, and one that reflects your most likely path. This will give you a clearer sense of your financial risk and help you make more informed decisions.

A forecast is a living document, it should change as your business does. Update it regularly with actual figures so you can compare your projections against reality. This helps you learn from what’s working (and what isn’t) and improve future forecasts.

Many modern accounting platforms allow you to sync forecasts with your real-time financial data. This can make it easier to update figures and spot potential issues early.

Staying on top of your forecast can also support better conversations with your accountant, your bank, and even potential investors.

Cash flow forecasting doesn’t need to be complicated, but it does need to be done properly. If you’re not sure where to start, or if your forecast is causing more confusion than clarity, it’s well worth speaking to an accountant.

We can help you:

• Create a clear, user-friendly forecast.
• Understand what your numbers are telling you.
• Plan for upcoming challenges or growth opportunities.
• Identify cost savings or financing options.

The earlier you seek advice, the more options you’ll usually have.

Whether you’re just starting out or looking to refine your existing forecast, we’re here to help. Our team works with businesses across a range of sectors to help with their cash flow plans that support growth and provide peace of mind.

We want you to feel more confident and in control of your finances. We hope these cash flow forecasting tips help you get started.

Get in touch today to see how we can support you.

Your friendly, forward-thinking, accountants!

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