While creativity, passion, and dedication all have a crucial role to play in any business, your company can’t thrive without cash.
Money is the lifeblood of an effective organization. As a business owner, it’s up to you to ensure that you always have more money coming into your company than what is going out.
Unfortunately, if you’re new to the business landscape, understanding how to predict cash flow is not as easy as it seems. According to Washington DC’s economic think-tank, most budget forecasts are wrong.
Understanding your financial situation entails more than making a pile of invoices at the end of each month.
Here are some smart ways that you can make your cash situation forecast as accurate as possible.
Your cash flow forecast needs to give you a detailed insight into your company’s cash position in the current landscape.
You need to understand where you are today, what kind of income you have entering your business, and what expenses you have going out.
Your sales pipeline, which includes information about your recurring payments, new incoming cash, and more, can be an excellent place to collect data.
You’ll be able to use this information to determine how much money you bring in each month on average so that you can predict future turnover.
However, it’s important to remember that in a business, things can change quickly. When using your sales pipeline to predict future income, ask yourself:
There’s a lot of caution and consideration required when launching and maintaining a business.
You won’t be able to accurately predict your future cash flow without thinking about the money you will be spending and what you’re earning.
With that in mind, ask yourself what expenses you need to deal with every month. This could include:
There are likely to be some less common fees you need to address from time to time too. For instance, you may need to replace the computer in your home office or hire a specialist to help with your business growth.
Putting some money aside each month for discretionary spending can help to keep your cash flow accurate.
No matter how good you think you are with your money, keeping track of your cash can be an exhausting and overwhelming experience.
Fortunately, many developers are producing tools and services that can assist with the cash flow management process. For instance, having the right invoice system can make your life a lot easier.
An effective piece of invoicing software will send automated requests for payment to your clients at the appropriate time each month. This means you’re less likely to miss out on payments that you forgot to ask for.
Your invoicing service can also keep track of:
Your invoicing system will make it easier for you to present your information to an accountant when the time comes to prepare for tax season.
Much of running a business revolves around your ability to be optimistic. When you first launch your company, you won’t make a profit immediately. You’ll have difficult periods when you might struggle to make any income.
Even long-running businesses can suffer from periods of dry patches.
Learning how to budget pessimistically can make it much easier for you to prepare for the most challenging periods of being an entrepreneur.
You’ll find that you’ll have much more protection in place when you err on the negative side when asking yourself how much money you need to keep in your savings.
It’s better to end up with more money than you expected than less.
Remember, rapid growth isn’t always the best way to make your business a success.
While it’s tempting to assume that the only way of running a great business is to acquire a lot of clients and customers quickly, you may not always have the capital in your cash flow, or the workforce in your team to support that much work.
Set SMART goals about what you want to achieve in your business (specific, measurable, attainable, relevant, and time-bound), and consider how you can boost your chances of achieving your targets.
Sometimes, you’ll need to say “no” to opportunities that could give you more money initially if it means losing out on bigger better in the long term.
Taking more work than you can handle could diminish the quality of your services, and ruin your brand’s reputation, reducing your chances of future growth.
In business, cash flow can be unpredictable and confusing. Changes in everything from customer trends to seasonality can leave you wondering how much you will earn from one month to the next.
However, using the tips above, you should be able to improve your chances of more accurate cash flow and keep your risks of overspending to a minimum.
Just remember to use the right tools, understand the value of pessimism, keep an eye on your goals, and make sure that you understand how much money you have coming into and going out of your business. Cash flow prediction isn’t easy, but it is crucial to the future of your company.
Michelle Laurey works as a VA for small businesses. She loves talking business, and productivity, and share her experience with others. Outside her keyboard, she spends time with her Kindle library or binge watching Billions. Her superpower? Vinyasa flow! Talk to her on Twitter.