Forecasting for success
Do you ever feel like one month you’re rolling in cash and then the next you’re scratching your head wondering where it went? The financial life of a small business can sometimes feel like a roller coaster!
But never fear, there is a way to minimise these ups and downs and to create a smoother flow of money. The best tool at our disposal to help us plan for financial success is cash flow forecasting.
Forecasting is simply looking forward in our business to identify those highs and lows and understand how we can account for these in our bank account. It helps you plan for the big expenses that you know are coming up and get a good idea on how much cash is left over for you to be able to invest back into your business.
According to Australian Government Research[1], 71% of small businesses showing potential for success are funded by their own personal finances. So, managing your cash flow wisely makes sense! Keen to know more? Here’s how you can forecast for your own business in 5 easy steps.
- Map out profitability by service offering or group
For each month of the year, record the sales and associated expenses for each of your offers. This will give you the profit for each offer.
- Review past results to find patterns in past sales
Are there particular months that see more sales? Is it seasonal? Can you see a trend in line with public or school holidays?
- Use those trends to forecast sales for the coming months
Now you know what your sales look like in the past, you can use this, together with your own experience to predict what sales will look like in the future.
- Add in known and expected expenses by amount and month
What expenses do you have coming up? Perhaps it’s a yearly insurance fee, your monthly Canva subscription, planned Facebook advertising or Xero expense. If you’re not sure what’s coming up, take a look in your bank account over the past year and record all of your outgoings against each month.
- Review
Take a look and see which months can expect a cash surplus and which months you will need to save ahead for. This will also give you a good indicator of any cash you may have available to invest back into your business (eg outsourcing, marketing) or even in yourself (eg workshops or courses).
Making sure that you’re on top of your business’s cashflow will mean that you can proactively manage the financial rollercoaster of small business finances. It also means that you’ll never be caught short, trying to juggle your expense payments. You’ll be able to invest with confidence, knowing that you’ll have enough cash in future months to cover your outgoings.
If you’d like further support with your forecasting, then my Start and Scale package is the perfect solution. A combination of templates, training and coaching will help you gain clarity on exactly what you need to do next.
[1] https://treasury.gov.au/sites/default/files/2019-03/AustralianSmallBusinessKeyStatisticsAndAnalysis.pdf