Managing Your Cash Flow

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Preserve finances and win investors: Using accurate cash flow forecasting to grow your business

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How often on shows like Dragons’ Den have we seen confident entrepreneurs suddenly shown the door when their inaccurate financial plans crumble under questioning from the experts?

A company’s growth more often than not hinges on the accuracy of its finances. Winning the trust of potential investors can come down to demonstrating whether your business will survive in a range of scenarios from market swings to a drop in sales.

More than ever, 2016 is a year you need to make sure your business forecasting is on the button. As a recent warning from Hitachi highlighted, an expected rise in interest rates and the uncertainty of the EU referendum mean businesses that haven’t planned carefully ahead may be in for a tough time.

Here’s how you can use cash flow forecasting to grow your business and protect your future.

Accuracy is key

The first thing to do is to make sure all your numbers are right from the start, because you can’t plan well if you don’t know exactly what you are starting with.

Forecasting is like an MOT for your business. You’ll need to gather together a record of all your ingoings and outgoings – no matter how small – lodge your assets and liabilities, input your staff costs and future hiring plans and account for supplier costs and expected sales. Basically, include everything that makes up your business or goes in or out of it.

Once you’ve done that you can start forecasting your cash flow. The great news is that this isn’t the headache-inducing chore it once was.

Forget spreadsheets and hours of error-ridden manual data input, thanks to cloud accounting, even the smallest of SMEs can get accurate, real-time financial data at the click of a button. This makes forecasting effortless and, dare I say it, even enjoyable.

Once the right figures are in place, forecasting will enable you to make informed decisions about your business, rather than having to make educated guesses or go with gut feelings.

Considering all the scenarios

No matter how detailed your business plan, you never quite know what’s around the corner. It pays to think about how different scenarios you may encounter would impact your cash flow.

For instance, if your main supplier raised prices by five per cent, could you afford to keep using them? Would it be worth the wage cost to hire an extra member of staff at Christmas to try and boost sales?

Before cloud accounting, adjusting your original forecast to plan for each of these scenarios was a serious piece of heavy work. Now, technology allows you to produce multiple scenarios in real-time, rather than taking days or weeks.

You can even run simultaneous scenarios side by side, enabling you to compare the potential outcome of different decisions you could make. That can really help remove the doubt from your decision making and let you plan with confidence.

Accountants are also using this kind of software. Moneypad, a forward-thinking accountancy firm that works with SMEs, recently helped one of its clients secure £200,000 of investment due to being able to present an accurate picture of the company’s future and the business goals it was likely to achieve.

Read more from Real FD:

Make it visual

Another advantage of modern software, is all this forecasting and number crunching no longer has to be presented to your team, partners or investors as incomprehensible numbers in a dull spreadsheet.

Now, a few clicks can transform numbers into clear, colourful and beautifully designed graphs and charts that make your numbers come to life – even engaging people who may usually run for cover when they think of finances.

Visualising your cash flow can also help you project a professional image, which is particularly handy when approaching investors.

Securing your future

Intelligent planning and good forecasting will help you secure your future and enable you to grow with confidence. Successful businesses always make sure they have the cash flow to carry things forward.

Accurate forecasting will not only give you peace of mind, but also reassure investors and business partners that you are ready for anything. You may never quite know what the future holds, but there’s no reason not to be as prepared as possible.

The financial market has changed and so has Real Business – we’ll be demonstrating that on Wednesday 18 May at The FD Surgery, our all-new event that will provide the cure to those minor niggles and major headaches plaguing the industry.

Amy Harris is the CEO and co-founder of forecasting and reporting engine CrunchBoards

Image: Shutterstock

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