You want to better understand where your business is heading with regard to cash, but you do not know where to start. While getting started with managing your cash flow can seem daunting, don’t let that deter you. Starting down this path will help you know whether you can purchase new equipment, hire a new employee, or have enough funds to pay your bills in the coming months. So what do you need to do?
Your Cash Position
Having an accurate understanding of your current cash balance is the first step to being the master over your cash flow. This can be challenging because your cash balance is constantly changing.
Determining your current cash balance involves more than simply looking at the balances according to your online banking portal or even in your accounting software.
Questions to consider in calculating current cash balance include:
- Are all payments going out of your accounts accounted for in your bank balance?
- Are all deposits coming into your accounts accounted for in your bank balance?
Your current or starting balance for your cash flow calculations can be calculated manually, but keep in mind that it will need to be frequently updated. Some have found that using an app for cash flow saves a great deal of time because it can automate much of this process by syncing transactions as they occur in your accounting software.
Your Cash Future
While having an accurate starting position is important, the power of forecasting your cash flow is all about the future. Being able to forecast your cash flow can empower you to make good decisions for your business.
The areas to consider when forecasting your cash flow include:
- Money coming in – Are you expecting payments on any of the unpaid invoices currently due? If so, when do you expect to receive and deposit these payments? The expected deposit dates will need to be added to your projected cash flow on these dates.
- Money going out – Do you have any unpaid bills currently due? If so, when do you plan to pay these? The expected payment dates will need to be subtracted from your projected cash flow on these dates.
- Forecasting – Which additional deposits in and payments out are you expecting will occur in the coming weeks or months? Be sure to include any deposits or payments that occur infrequently, such as quarterly or annually.
- Minimum balances – What is the minimum cash balance that you want to maintain?
Being able to forecast your cash flow can empower you to make good decisions for your business.
Forecasting your cash flow does involve a lot of moving pieces. But there is no need to be overwhelmed or scared. You can use a spreadsheet to build a forecasting model or you can use a cash flow app that can automate the updating of much of the data.
Forecasting your cash flow can be time-consuming. But there is no need to start this journey alone. We have been working with many of our clients to determine their true current cash position and to help them with their cash flow management. Are you ready to get started with managing your cash flow? If so, reach out to us to find out more about how we can help.