Monitor and Forecast Your Cashflow

Without good cashflow management, most businesses are likely to run into problems before long. Whether you’re navigating lean market conditions or implementing expansion, being profitable on paper isn’t enough if you don’t have healthy cashflow. Any business person worth their salt knows cashflow is important but finding the time each month takes discipline. But understanding the health of your cashflow is possibly the most essential business diagnostic of the health of your operations and should form a cornerstone to future planning and decision making.

In this article, we will discuss the basics of cashflow monitoring and basic planning. Future articles will deal with various options you have to improve your cashflow problems, such as credit control, waste and procedural audits, and growth strategies.

The Essentials
Understanding the basics and being able to do it on paper can’t be understated, and that starts with doing a simple cashflow analysis of your business.

In a nutshell, Cashflow monitoring is the process of comparing your Monthly income outgoings to evaluate your net cashflow at the end of the month. It should include income and expenses from operations, investments, and financing. The objective of finding your net cashflow for the month is to add this to your opening balance (start of the month) to yield a closing balance (end of the month). If you have less cash at the end of the month than at the start, you can take appropriate action to avoid future cashflow problems. Alternately you may have excess cash and take action to make your money work for you.

Part of doing a good cashflow analysis is logging the income and outgoing of your GST, accounting for lodgment schedules to better represent actual cashflow. Talk with a tax professional to ensure you make the appropriate GST considerations for your business.

Planning Ahead
You can use the figures from your current cashflow analysis to forecast for the coming year. Consider if your cashflow currently enables you to progress with your business goals. Review your business plan, consider if your cashflow permits the next step. It could be the purchase of new equipment, paying down debt, or budget to launch a new product line. All require cash, and your cashflow forecast can give you a realistic projection of whether your current business operations will enable you to achieve the next step in the plan. Alternatively, your cashflow forecast can indicate that you need to make adjustments to your business model or your expectations – whichever is more realistic.

Building a Robust Forecast
Cashflow forecasting is best done in conjunction with other business planning tools, such as staff planning, 3-Way Forecasting, benchmarking, scenario planning, economic forecasting and current market research. While such tools are not a crystal ball into the future, our advisory specialists provide a realistic scope of outcomes to ground your expectations of the near future.

In the event that your current monthly cashflow monitoring shows you have a significant amount of extra cash, examine your options for short term investment strategies that can bring in income, such as high-interest accounts. Be sure to check the withdrawal conditions so you can access your cash should you need it. It’s a good idea to run your plans past a tax professional to check it’s the right move for your type of business.

Cashflow is the pulse of your business. Our business specialists are dedicated to helping you optimize your business operations so you can reach your goals. We will do a forensic review of your business and work with you to implement optimizations that make a difference.

We’re here to help. Don’t hesitate to raise any concerns with your usual partner. If you’re a new client, we’d love to hear from you.

Darren Laarhoven:
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