The idea of cashflow sounds simple. Money comes in – and goes out of – your business. But knowing what’s going to happen when, whether it’s a new sale or a bill that must be paid, doesn’t always feel as easy.
Having more money coming into the business than going out is the sweet spot every business owner wants to be in. This is known as positive cash flow. Negative cashflow, by contrast, is when more money is going out of the business. If you’re regularly in negative cashflow, your business may be struggling.
Covid-19 restrictions have made the business landscape feel especially unstable. Stick to your regular cash flow forecasting as best you can. Getting into good habits will make this second nature, and help create a sense of control over what is going on right now.
1. Have a system in place
Propeller offers a free spreadsheet template for cash flow forecasting. Grab it now from our resources page. Then, make a date with yourself every single week to fill it in – same day, same time. We estimate you’ll need an hour that is free of interruptions, with a nice strong latte next to your laptop.
2. Look backwards to plan forward
To start, it’s useful to review historical data. Two to three years is a good benchmark to work from. Remember to account for public holidays or quiet seasons when your cash flow will fluctuate.
If you don’t have historical data, your forecast doesn’t have to be based on guesswork. Instead, google around for industry data, join a Facebook community of small business owners and post a question, or ask the Propeller team for insight based on similar clients.
If you still cannot access insights, start small and forecast a couple of months in advance only. You’ll soon piece together the big picture of your business’ cash flow.
3. Become besties with your accounts payable figures
As a small business owner, you need to become closely acquainted with your accounts payable. What terms of payment are you committed to? What money goes out on a regular basis? How long do you keep stock on the floor before you sell? What’s the timing of paying suppliers?
As well as these regular payments, brainstorm all the additional expenses you might encounter above and beyond the norm. Do you want to run a quick social media advertising campaign? Replace the printed signage in your cafe? Note all of these items and rough costings in your cash flow forecast for the period, as well as any anticipated sales spikes or dips as a result.
4. Listen to what the forecast is telling you
Tracking when money will come in from clients/customers and when it will go out to pay suppliers and bills, is just the start of this process. You need to listen to what your cash flow forecast is telling you. Are you in the black or the red? And why?
If you’re in the red, consider all the ways you can address this. Perhaps you can identify and stop financial leakages, review financing options on debts, reassess your personal spending habits, or generate new services for additional revenue.
For business basics support like improving your cash flow forecasting, or more in-depth business finance support, get in touch with the Propeller team.
