cashflow

Why Cash Flow Forecasting Is Essential For SMEs

MOMENTUM Business Support Business Support, Finance
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SMEs are the backbone of any economy. They create jobs, spur innovation, and drive growth. Despite their importance, small businesses often struggle to survive. In fact, reports suggest that only 20% of SMEs make it past the first year in operation. There are many reasons why a company can fail, but one of the most prominent is a lack of cash flow. It’s the lifeblood of any business, and without it, a company will undoubtedly struggle.

A forecast can help your business avoid financial problems and keep operations running smoothly, so we’ve decided to highlight the importance and share our tips for perfecting the process.

What is cash flow forecasting?

Cash flow forecasting is the process of predicting a business’s future cash flow based on past performance and other factors. It involves analysing a business’s spending and income to determine when they will have excess and deficit cash. This analysis can be done regularly and be adjusted as needed.

The benefits of cash flow forecasting

Cash flow forecasting can be a powerful tool for SMEs. It allows business owners to plan for future cash needs and predict potential issues before they arise. It also promotes better-informed decisions about managing finances, helping to keep business running smoothly. Forecasting can also help to identify areas of inefficiency. By tracking cash flow, companies may be able to identify areas where they can cut costs or improve profitability – maximising financial management efficiency. Finally, forecasting can help SMEs get additional financing. Many lenders require businesses to provide a cash flow forecast before granting a loan. A good cash flow forecast can show lenders that the business is stable and has a good amount of cash available.

How to create an accurate cash flow forecast

Creating an accurate cash flow forecast requires careful planning and analysis. The first step is to track your business’s income and expenses. This can be done by entering all transactions into an accounting system or tracking it manually. Once the data is gathered, businesses can use software or templates to create a cash flow projection. This will provide an estimate of future cash flow based on income and expenses. It may also include other factors such as seasonal changes, pricing fluctuations, and marketing campaigns. Businesses should also consider creating a contingency plan for unexpected costs. This plan should consider sources of financing and other measures that can be taken to ensure the business stays afloat in times of cash shortages.

Top tips for creating an accurate cash flow forecast

• Track income and expenses regularly: Tracking your cash flow on a regular basis will help ensure that your forecast is as accurate as possible.

• Analyse changes in the market: Stay up to date on changes in the market to make sure your cash flow projections are realistic.

• Include long-term expenses: Don’t forget to account for long-term expenses such as taxes or new equipment.

• Look for potential sources of financing: Keeping track of potential sources of financing can help you plan for cash flow shortages.

• Consider outsourcing your cash flow management: An experienced outsourcing team will save you both time and money becoming the perfect ally.

If you’d like to find out more about cash flow forecasting or require any additional business support – we’d love to help! Get in touch:T: 01903 688789 E: makeithappen@mbsmih.com

5 Easy Ways To Improve Your Cashflow

MOMENTUM Business Support Finance
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Cashflow is without a doubt the number one issue faced by small business owners. Almost every survey, poll or graph highlights this, and even if they didn’t, we all know ourselves that this is most definitely the case!

We work with a number of small businesses in a wide variety of industries and sectors, and thought we’d share with you some of the best processes we’ve learnt and implemented.

1.    Reduce Payment Terms
Whilst the perceived ‘norm’ for payment terms is 30 days, there is no actual rule or regulation that truly says this must be the case. If you’re a B2B provider that issues invoices on a monthly basis you can decide when they are due. This may vary from client to client as agreed or you may decide on a generic approach, the point is, if you want your invoices paid within 14 days instead of 30, then this is your decision. The benefits here are that payments are received regularly throughout the month, and if you have late payers, their perception of how late the invoice is increases. Whilst you still might not receive the payment on time (within the 14 days), you’re much more likely to receive it within 30 days!

2.    Invoices Due At Different Times Of The Month
Though creating invoices at a set time within the month may be useful for your time management, it’s not ideal for cashflow. Creating invoices weekly with varied payment terms as you see fit or as agreed with your customer will help to ensure that you have fresh payments cycling through the business every week. It will also help with Credit Control and keeping on top of late payers. The benefits here are that payments will flow more regularly throughout the month. If you have 30 day payment terms, and space out your invoices to be sent (let’s say) each Friday, after the first month you will start to receive fresh income each week.

3.    Speak To Account Payers Regularly
The best way to ensure your invoices are paid regularly and on time is to ensure you have a good working relationship with your clients. Speaking with them on a regular basis about what’s happening in their business and understanding if there may be reasons to stop them paying your invoice on time will help to mitigate this actually happening. By simply following up once you have sent invoices out to ensure they have been received, and there are no queries, proactively reduces the likelihood of last minute ‘no pay’ reasons. It also helps build an open relationship and shows your clients that you’re happy to work with them and be flexible where needed, and encourages them to be the same with you.

4.    Get Someone Else To Cover The Credit Control
Another great way to help ensure your payments run smoothly throughout the month is to enlist the services of an independent person to conduct your Credit Control. This ensures you keep your working relationship with your client, they can vent any frustrations to you about your Credit Control person, but ultimately don’t ‘blame’ you, as the Credit Controller is merely doing their job. It’s the age old ‘good cop’ ‘bad cop’ routine, but really works when it comes to maintaining relationships and getting paid!

5.    Invoice On Time!
An obvious but easily and frequently overlooked factor in cashflow. Whilst it can be hard to keep on top of all of your paperwork and do the work too, invoicing should never be sacrificed. Book a regular spot in your calendar each week/month and above all else, once you’ve done the work, get the invoice out there!

We have lots of experience when it comes to cashflow improvement and credit control, so please don’t hesitate to get in touch if you’d like to chat through your current processes and how they could be enhanced – T: 01903 688789 E: makeithappen@mbsmih.com