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One could argue that the most crucial factor for your business to thrive is having sufficient cash. While both Cost Control and Budget Discipline are important, cash is the forerunner. Therefore, having an accurate forecast of your cash requirement is essential. A cashflow forecast reflects an organisation’s future financial position, based on the estimated cash outflows (expenses) and inflows (receivables).

Unless you are using accounting software or spreadsheet software, you may tend to do this manually on paper or using accounting books. If you’re using spreadsheet software, you may find many templates free of charge within the software itself. Otherwise, you can use the many free templates available on the internet.

Either way, preparing your cashflow forecast should start with identifying your measurable cash inflows. These can be;

  • Business revenue
  • Initial investment (Capital)
  • Loans
  • Proceeds from selling assets
  • Royalties or license fees paid to your business

Then, it’s time to account for the expenses. Apart from regular operational overheads, there can be other expenses such as;

  • Financial service fees
  • Acquisition of new assets
  • Loan repayments
  • Dividends

To have a margin of safety, it is safest to assume that expected inflows will be delayed beyond the expected date(s), while assuming that your expenses will incur sooner than expected. Also, given that you have a sound understanding of your business and its environment, you can take further precautions by accounting for slightly higher than expected outflows and slightly lower than expected inflows. By doing this, you will have created a cushion to safely land on, in case things do not go as planned. Forecasting enables you to track your current and expected financial position and to control your behaviour accordingly. If you see something challenging your cash flow, you can tackle it without waiting for it to transpire, or affect your business as badly. 

When you have cashflow challenges, you may do a few things to tackle them.

  • Negotiating with suppliers (if applicable) to give you a grace period (this is why you should always look forward to building long-term, trust-based relationships with your stakeholders including vendors).
  • Do a comprehensive analysis of your business model and the operation to identify possible costs that can be reduced or avoided (the Pareto Law or the 80/20 rule will be handy – in this case, 80% of your costs might be addressable by tackling 20% of cost items).
  • You may make a quick sale of items (could be both assets and inventory), at a reduced price if necessary, to cover any cash shortfall
  • Looking for opportunities to generate additional revenue from your assets (if you can rent out part of your building, why not make some extra cash?).
  • Collecting your outstanding debts more proactively (if you are tight on cash, you can offer your debtors options to make part payments or reduced payments)

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