When it comes to small business accounting, some industry best practices can go straight over your head, especially if you are trying to do your accounting yourself. While experienced accountants can be useful, it can be hard to justify paying for them to do all of your bookkeeping for you. This can lead to a lot of stress on your behalf, as you try and navigate the difficult challenge of keeping your accounts during the year.
There are some things that you, as a small business owner, can do to improve your business efficiency and to manage your finances better. One of these things is cash flow forecasting, which involves creating a rough plan that shows how much income you are expecting over the following few months or years.
What Is Cash flow Forecasting?
Cash flow forecasting involves creating a detailed financial plan which does two things:
- Calculates how much money you expect to flow into your business (income).
- Estimates how much money is going to flow out of your business (expenses).
First, you need to make an accurate estimate of your daily business running costs. Include things like rent, electricity and other bills and wages. Multiply this by the number of days in your forecast period, and add any other major costs you can think of – include things like one-off maintenance, stock costs and accountants fees. The total of all these will be your total expenses.