Managing cash flow is down to some basic principles: having more income than expenditure, money arriving in a timely manner, and healthy sales. Forecasting sales and expenditure is a crucial part of managing cash flow, which is where an outsourced accountancy service is often required.
Careful management will enable you to spot any potential shortfalls of cash or unavoidable expenses, which could cause problems for the company.
Be honest
When you are forecasting income and expenditure, you must be completely honest and include everything, down to the office stationery. If you base any plans for your company on anything less than a realistic forecast, you will be risking the fall of your business. Be wary about forecasting sales unless you know they are in the pipeline. It is better to underestimate than base your marketing budget on false sales figures.
What is the meaning of cost and income?
Knowing when a cost becomes an expense and an invoice becomes income will help your forecasting. Although you may have a number of invoices, they aren’t income until the money is in your account. If you buy a piece of equipment for the company, it isn’t a cost until the money leaves your account.
Seasonal sales and expenses
A cash flow forecast will help you to plan finances around seasonal ups and downs through the year. If you sell more goods during the summer than at any other time of year, you can produce a forecast that will help you plan for those months when sales are low. You will also be able to plan for unforeseen cash flow problems and avoid a catastrophe.
Forecasting can be complex, which is why many people outsource to an accountant. If you would like some advice, please contact us for help.
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