Cashflow forecasting tips for small businesses

Having an accurate cashflow forecast is crucial to spotting any potential issues in advance. Here are the three key steps to projecting small business cashflow.

It’s not uncommon for small businesses to face cashflow issues. Historically, nearly half of small businesses in Australia have experienced negative cashflow, and it ranks as one of the top four factors that impact New Zealand small business.

Part of the problem is that many small businesses have their cashflow balanced on a knife edge, which means an unexpected sales slump or late payment from a trade partner can tip you into the red. Having an accurate cashflow forecast is crucial to being able to spot potential cashflow issues in advance and plan your spending accordingly.

Here are some tips for projecting your cashflow.

1. Estimate your income in a time frame that’s relevant for your business

Input all the cash that you expect to enter your business in a given period. The time frame you select will depend on the type of business you run and how quickly you are paid for the products or services you sell. A hair salon where customers pay their bill immediately, may want to create a monthly or even weekly cashflow forecast, whereas a business that is more project-based may want to forecast cashflow on a monthly or quarterly basis. Don’t forget to take into account any changes that might impact your sales or income, such as the launch of a new product.

2. Don’t just focus on recurring expenses

Next, input all your expenses for the same time period. This includes any materials or supplies you need to buy, staff salaries and payroll tax, rent and utilities, professional services fees and marketing costs to name just a few. But don’t just focus on recurring expenses. Big one-off payments like a tax bill or new piece of equipment can kill your Cashflow if you haven’t factored them in.

3. Update and evaluate your forecast regularly

It’s crucial to update your cashflow forecast regularly. Set aside some time each week or month, depending on your business, to see how your actual sales and expenses compare to your estimates and adjust your expectations of future sales and expenses if necessary. Try to spot seasonal patterns and other factors relevant to your business. For example, the impact of weekends and holidays, weather, or the time of year. This way you can take action if it looks like you’re about to face a cashflow crunch by negotiating a longer payment term with a vendor, or using a buy now, pay later solution like hummpro to cover your expenses until you’re back in the black.

You can’t always prevent a cashflow crunch, but you can gain some breathing room with hummpro.