Skip to main content

7 Reasons Cash Flow Forecasting Is Key To A Successful Business

By August 25, 2017Blogs

There are many tools you can use to make sure your business is prepared for the future and that success is almost guaranteed. However, cash flow forecasting is one of the most important tools that you could use and if your business is not taking advantage of it, here are 7 reasons why you are missing out…

Coleman & Co provide a range of accounting services to help every business manage their finances effectively. When it comes to cash flow forecasting, we can help your business succeed by planning properly for the future.

Reduce Your Costs

One of the initial steps to creating a successful business is to make sure you are not spending too much money. If, on top of fixed costs, you start to spend money on unnecessary supplies, you will constantly be overrunning your budget and outweigh your revenue with expenditure, which certainly isn’t a good idea.

By storing details of previous months cash flow and forecasting how this could repeat itself, you can target the areas where you have spent too much money and not spent enough. Once this is balanced out, you will have a much better chance of significantly increasing profit margins.

Make Payments On Time

Although nobody enjoys doing it, making payments is something that must be done for every business. Without it, you won’t get your supplies on time and therefore your business won’t be able to sell products if you rely upon this.

If you have payments going out at random times each month, it makes finding your actual profit slightly more difficult as payments will always be made. By organising your payments for specific dates, you can work out exactly how much and when you are spending money and ensure payments and made on time and you spend the right amount.

Staff will also want to receive their wages on time every month, which can also be included in your cash flow forecast to prepare for this outgoing.

Gather Payments

If you have to make your payments on time, it also means you need to collect your money at the right time. If customers are constantly making late payments, this doesn’t reflect too well for your business. Not only does your business not get the money it needs to cover the costs, but you are providing a free service for these customers – don’t let them do this to you!

With cash flow forecasting, you can make sure customers pay the right amount on the right date every month or week, allowing you to prepare for when turnover will be received.

By keeping incoming and outgoing payments being made on a consistent date month upon month, knowing how much money you have for future dates will help you prepare your business and set targets for how much money must be made.

Set Targets

Making sure your business generates enough cash is why cash flow forecasting is such an asset to the business but to make sure your reach expected revenue, your staff have to sell. Setting realistic targets for your staff can be a great boost to help increase revenue every month.

If staff know when they complete a certain amount of work each month that they will get a bonus, they will often work a lot harder to do this. By using cash flow forecasting, you can make sure the targets you set are realistic for your staff members and will help you reach targeted income.

Reduce Risks

Small business survival rates are as high as 91 per cent after one year of trading, but after five years just four in ten small businesses will still be trading’, according to Small Business, which is why you should always be forecasting your future. By planning out where you will invest money and forecasting how much you will make each month, you reduce a lot of the risk that comes with starting a new business.

Additionally, Coleman & Co can offer our advice for all new businesses, helping you grow the business at the right rate and stopping you from overspending in the future.

Growing Your Business

Although businesses are often based around a sole service, there is plenty of room for manoeuvre and you must ensure you invest in the right parts of your business. Cash flow forecasting will help massively with this.

Having a detailed account of not only how much you are spending, but where it is being spent can influence how your business grows. Once you have identified from your cash flow forecasting what part of your business makes the most money, you can continue to invest in this area. If there is a department costing too much money, you may want to invest less there as in the future it will only become more expensive.

Create New Products

Cash flow forecasting helps your business become successful, but is also a great method to trial new products and services for your business. You will already know how much you have to spend on the creation of the product and what profit margins you will be looking to create. Once this is done, you can forecast just how much money you would make off the product and compare this to how often it is sold within the next month.

If the profit margins are not as high as you expected, then you know the product may not work as well – but at least you haven’t invested too much money into it. Instead, you can focus on different products or if it was a success, continue to invest.

Contact Us

Coleman & Co offer support to every business for all your accounting needs and specialise in cash flow forecasting, ensuring you are always prepared for the future of your business. Find out more information about the services we offer or for our advice, call us today on 028 9266 3599.

Leave a Reply