Managing cash flow is a vital part of running a successful business. Some business owners think managing cash flow means keeping track of how much money enters and leaves their business, but there is actually more that goes into it.
Cash flow forecasting, for example, is an incredibly valuable tool that helps you anticipate cash flow issues, plan for days when your cash flow is limited, and show the bank that you are prepared.
It is an important process that you should not ignore. Here are some ways cash flow forecasts help entrepreneurs.
Most businesses go through slow periods. Sometimes, those periods are obvious. A seasonal business, for example, will have decreased income during the off-season than during the on-season. There can be less obvious peaks and valleys in your income, though, that you have to prepare for.
Your cash flow forecast can help you monitor your day-to-day cash flow and anticipate when times will be slow before they hit. By anticipating when cash coming into your business might be light—or when you might have to spend more than you are accustomed to—you can avoid a cash crisis.
By examining your cash flow over the previous years and forecasting your future cash flow, you can better anticipate financial cycles and how they affect your bottom line.
It is tempting to spend money when you have a lot coming in. Your business may need new equipment or maybe you want to give all your employees a raise or a bonus.
That is a great thing to do, but it is only helpful if it does not put your business in jeopardy financially.
Cash flow forecasting is a great reminder about how your bank accounts will look during tougher times, so you can make important decisions about when to spend your money and when to save it.
If you know a slow period is coming up, it might be better to save your money for now and give out smaller bonuses. If you can anticipate your slow period, you can plan major purchases and bill payments around it, to stretch your cash further.
At least by conducting cash flow forecasts you are less likely to be surprised by a sudden cash flow crisis.
Banks prefer to give their money to entrepreneurs who show they are capable of planning ahead. Financial institutions prefer business owners who are realistic with their financial projections and show they have a means of addressing cash flow issues.
Forecasting your cash flow gives you a clearer picture overall about your business and how the money moves into and out of it. It provides important insight into your company’s financial health.
If you have not conducted cash flow forecasting so far, it is a good idea to get started now so you have a better understanding of your company’s finances and so you can prepare for the future.
Want help to improve your cashflow? Contact us today.
Donna Bordeaux, CPA with Calculated Moves
Creativity and C.P.A.s don’t generally go together. Most people think of C.P.A.s as nerdy accountants who cannot talk with people. Well, it is time to break that stereotype. Lively, friendly, and knowledgeable can be part of your relationship with your C.P.A., as Donna and Chad Bordeaux demonstrated. They have over 50 years of combined experience as entrepreneurial C.P.A.s. They’ve owned businesses and helped business owners exceed their wildest dreams. They have been able to help businesses earn many times more profit than the average business in the same industry and are passionate about helping industries that help families build great memories.