Plan it right: Mastering your cashflow forecast
Novuna Business Finance shares how smart forecasting can drive growth and protect your franchise investment.
If you are creating your business plan for a new franchise investment, then a good cashflow forecast is an essential tool. But how do you plan ahead if you’re just starting out? And how do you create a forecast that’s useful?
Successful planning can take the pressure off your business in the short term and make it easier to grow.
Understanding your future cash position helps you to make better decisions about funding and how to grow your business — essential if you wish to expand via multiple sites, buy more stock, or take on extra staff. A good forecast also helps you understand whether you’ve enough money coming in to cover your overheads and pay staff and suppliers. If you don’t, you can’t pay your bills on time — this affects your credit ratings and could very well mean the end of your business. This is especially important when considering franchising costs.
Every business is different, even the most profitable franchises are dependent on the activity of its creditors and debtors, and it’s important to strike a healthy balance between the two. If you’re paid late by a customer, or have to settle an invoice early, or too much money is taken out of the business, it may become vulnerable.
Low cash levels mean extra pressure for you to deal with. The answer is to project your cashflow and predict any preventative action you can take.
This is called cashflow forecasting. The simplest way to proceed is to set up a 13-week cashflow forecast.
Your 13-week cashflow — how and why
For this, you’ll need to reconcile what’s coming in and going out regularly. A 13-week period accounts for just over a quarter or a season in calendar terms. It’s also the usual length of time used by accountants, investors and lenders to assess if a small business has a positive outlook for its cashflow.
You may be surprised by how far forward you can project your income, particularly if you’ve started issuing invoices. You’ll also see how useful the forecast is for monitoring who you’re expecting payments from and what the impact might be if those payments are delayed. Try it for yourself—manage your business the right way!
Good luck!
