While a global pandemic may have made the last six months challenging to navigate for the majority of business owners, now is the time to be looking forward to next year and thinking of ways to increase the likelihood of a positive 2021. One of the best tools to organise and plan your approach to next year is a cashflow forecast.
A cashflow forecast does not have to be overly complicated. In its simplest form, it is a record of money in and money out of your business. Build the forecast in a way that you understand it, and remember that you will need to update it frequently; if it is overly complicated then updating it will be cumbersome, so keep it simple.
We’ve rounded up a few of the benefits a cashflow forecast can have on your business along with some practical tips on putting the forecast in place.
Anticipate Changes to Cashflow
Cashflow forecasting allows for the anticipation of any shortages or surpluses that may come your way. A great way to do this is by mapping out how much money will potentially leave your business and when, for up to three years in the future. Identifying these potential changes early on means that any business decisions you make will have taken this into consideration, as well as allowing you to plan how any future surpluses can be reinvested back into your business.
See the Impact of Potential Future Scenarios on Your Business
Cashflow forecasting allows you to see the impact of hypothetical future scenarios on your business. More Covid implications, for example, can be predicted, and adjustments made accordingly. Furloughed workers, forced closures and decreasing sales have been prevalent over the recent months, but by forecasting similar circumstances now, you can be confident that your business is prepared to navigate any future external factors. And, perhaps under more normal circumstances, in-house changes like hiring a new employee or an unexpected rise in sales can be factored in, enabling you to make more informed decisions for your business.
Monitor Spending Patterns and Adhere to Budgets
Budgets are set for a reason, but they can be tricky to keep to, especially when your circumstances are changing frequently. A cashflow forecast allows you to keep track of exactly what you are spending, and how this matches up to the budgets set. Any overspending or discrepancies can be identified quickly and rectified with ease, allowing you to move forwards positively.
Building your cashflow forecast
Many businesses build a cashflow forecast in excel which is a perfectly capable tool for this type of work. To help, we have provided a Free Excel Cashflow Forecasting template which you can download here, to enable you to visualise and secure your future financial position quickly and easily. By downloading, you’ll be able to use the content generated to accurately project your future payments and receivables. The template is designed for simple non-VAT registered companies. If your business is more complex then you may want to consider software to automate the process.
For our more complex clients, Your Finance Team partners with Fluidly. This software uses AI to forecast your cashflow, affording you high levels of prediction accuracy and making the forecasting process much quicker. Fluidly links up with your accounting software and looks at your transaction history to build a picture of what future cashflows may look like.
The last six months have been challenging. By putting measures such as cashflow forecasting into place, you optimise the potential for the success of your company and better and brighter 2021.