Money Doesn’t Grow On Trees

As a business owner, you will need to ensure positive cashflow to sustain and grow the business after the initial investment. Carrying out a cashflow forecast is vital for finding out if there is a need to increase working capital to ensure the sustainability of the business. Regardless of whether your business is new or already established, using cashflow forecasts to plan your spending and assess potential cashflow risks can be equally crucial.

Cashflow forecasts

Cashflow forecasting allows you to anticipate cash-balance peaks and valleys. This can help ascertain how much and when to borrow from a bank, and how much available cash you might have at any given time. Many banks ask for cashflow forecasts before approving a loan. Using cashflow forecast, you can see the sources and amounts of cash flowing into your business, as well as the characteristics of cash outflows.?

Business owners normally prepare the forecast for a year or quarter, which can be divided into weeks or months. The forecast should take into account:

• Bank balance at the start of the period
• Bank balance at the end of the period
• Receipts or cash inflows
• Payments or cash outflows
• Excess of receipts over payments – with deficits shown in brackets

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If you separate cashflow for business operations from funding cashflow, you can get a clearer picture of your business’s actual performance. This allows you to find out how self-sufficient the day-to-day operations are. For established businesses, it is wise to base your revenue forecast on the same period 12 months earlier. You can also use accounting software to prepare cashflow forecasts, which allows you to update your projections in line with changes in your business or market trends.

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As a business owner, you might want to consider taking Digital SME (DSME) loans to improve your cash flow. For more information on DSME loans, please click here .