There are many different things that the owner of a business needs to juggle. There is the basic financial viability of the business itself, the inventory or product that is produced, and the payroll that needs to be paid on a regular basis. The more information a business has the better it can predict what is going to occur in the future. Cash flow forecasting is a simple measure of the historic performance of your business and the results of that performance. This information needs to be presented in an organized manner so that it can be understood and evaluated effectively to allow for business improvement and efficient functioning.
Using some sort of spreadsheet or computer software, such as that available from Up Your Cash Flow, the historic assets of your business need to be recorded. This will include all money coming in for whatever products or services the business provides. They should be listed by the week or the month so that each part of the year can be assessed. Some large corporations even evaluate to the day, but there are too many mitigating circumstances to allow for this. A poor weather day one year can affect sales on that day, which has nothing to do with the performance of the staff or the quality of the product. A weekly assessment and a monthly record seem to give a more accurate record of performance. Years of data will reveal patterns of performance that should be able to be predicted. Understanding that with some businesses, bills are sent to clients and customers and payments may not come in for at least 30 days. This has to be considered in the cash flow prediction.
Liabilities and Costs
Set against your assets are your liabilities. These include every bill that you have to pay. It begins with things that are static and consistent, like the rent for a business location. This cost has to be paid each and every month. Other costs are the price of stocking shelves or providing whatever inventory the business needs in order to be consistent. Next are the salaries and insurances that employers have to pay in order to have people working. These are tallied and the liabilities for every week and month of the year are available to the business owner.
The Simple Math
The simple math an owner must do is to subtract the liabilities from the assets and the resulting number is the potential profit that could be made in a business venture. A careful and considerate evaluation of these factors over a period of years will lead to a relatively efficient cash flow forecast of the business and its viability. All of the historic information collected is placed in a spreadsheet format that can be easily analyzed. This should be the plan for the running of a successful business.
What Cash Flow Forecast Can Provide
The most important thing this can provide is the ability for a business owner to predict how to spend resources and when to expect slower times. If, over a five year period, October has been a slow month in the business, then a business can evaluate why this is so and make adjustments to increase sales and profitability. Perhaps there could be some sort of special promotion to make that month more successful. If there are particularly good months then you can plan to increase inventory available for that month in order to increase your profits. Building, understanding and using a cash flow forecast will make your business more productive and profitable.