Category: Financial Performance

How to Set Up and Maintain a Budget for Your Startup 

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Creating and following a realistic budget for your startup is essential. In fact, it can even determine whether or not your business makes it out of the gates. A budget shows you how much money you’ll need to make in order to break even and highlights what you can and can’t afford. It also helps you to forecast and manage your cash flow, which is essential to keep your business in good financial health. Budgeting can be a daunting task but this guide is here to make it easy by breaking it down into four simple steps. 

1. Calculate Your Costs

It takes money to make money, and it’s important to work out how much you’ll need to launch your business. Think about what you’ll need in order to start serving customers, whether that means setting up a website or opening the doors to a brick-and-mortar establishment. You can generally group your costs into three main categories: 

  • Facilities: this could be the location of your shop, restaurant, co-working space or offices. If you haven’t found the right place yet, it’s worth doing some market research to give you an estimate of how much the rent or mortgage will set you back. However, the costs don’t always end there. You might need to remodel your chosen location to fit the needs of your business. 
  • Capital Expenditure: this is how much money you’ll need to maintain and improve your facilities. Office furniture, equipment and decorations all fall under this category. 
  • Materials and Supplies: these are the items you’ll need to use in order to run your business, such as ingredients for a restaurant or beauty products for a salon. 

Remember to stay mindful of smaller costs; it may be tempting to overlook them, but they can add up very quickly.

2. Work Out Monthly Expenses 

Your monthly expenses are the costs associated with the items and services needed to run your business. You’ll need to have an idea of how much you’ll be spending each month in order to calculate the amount you’ll need to earn to break even. These expenses fall into four different categories:

  • Fixed expenses stay the same each month. Examples of fixed expenses include rent, internet packages, subscriptions and insurance.
  • Variables are more difficult to predict as they change in line with your volume of sales. Supplies, shipping costs and raw materials are all variable expenses. 
  • Semi-variables are fixed costs which can become variable if production volume dramatically increases or decreases. A surge in demand might require you to pay your staff overtime or result in a higher electricity bill than usual. 
  • One-time expenses are often unforeseen costs such as equipment repairs, but also might account for planned events such as business conferences. 

3. Estimate Your Monthly Revenue 

It’s difficult to know how much you’ll actually earn during your first few months in business. What’s more is that your monthly revenue is likely to fluctuate, so do your research and take a look at how similar business models fare throughout the year. If you’ve hired an accountant or financial consultant, they might be able to offer some valuable insight. Factors such as retainer contracts and industry-wide seasonal trends will also help you to predict what your income. However, it’s advisable to remain conservative with your estimates to prevent overspending. 

4. Review Cash Flow 

Cash is king in business and maintaining a healthy cash flow is essential for survival. Bear in mind that you won’t always be able to collect money for your goods and services straight away, which can lead to cash flow issues even if profits are sky-high. A booming sales month is great, but you may have bills that are due before you’re able to collect payment. If you don’t have money set aside for this instance, you’ll find yourself in hot water. In this sense, cash flow is just as important as profit for the financial health of your business. 

It’s wise to set aside some business savings for times when the cash flow slows to more of a trickle. Review your cash flow each month to spot patterns, prevent overspending and budget for the future. 

The Golden Rule 

Finally, it’s important to follow the golden rule as you work through the above steps: stay conservative. Highball your expenses estimate and be prepared for low sales. This helps to protect your profits and keeps you on your toes to prevent overspending. Careful budgeting allows you to make prudent financial decisions and keeps your startup on track for financial success.

How to Set Ambitious Yet Realistic Goals

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Adjusting your goals and expectations to what’s within your possibilities will ensure your success. Not to mention, it can help you avoid unrealistic planning frustrations.

Having reasonable goals can be a driving force behind individual, team, and company success. If you precisely determine what you’re aiming at and do it early on, your efforts will have a clear direction and appear more meaningful.

However, setting goals isn’t without its challenges – poor orientation, succumbing to perfectionism, and lack of motivation are among those that are quite detrimental. 

That’s why we’ve compiled a list of steps that will help you determine and set optimal goals while avoiding the common pitfalls.

Step #1. Back Your Goals Up With Solid Planning

The importance of thorough planning can’t be overstated.

A goal without a plan is, in essence, just an abstract idea you can’t act on. That’s why the first thing you should think about is exactly how you’ll achieve your goal.

The most effective way to make a plan is to start with the big picture in mind and go more and more into details.

Start with a general road map – setting a certain finish line and marking every bump and turn down the road. Then take a look at the individual stages of the journey and define the challenges you could encounter.

Keep in mind that this is a crucial step – if there are too many obstacles requiring more energy and resources than you can expend, you will do well to reconsider your main goal immediately.

Finally, once you know where you’re going and how you’ll get there, start preparing contingencies.

A good plan will take you a long way, but it would be wise to expect something to go sideways. Prepare to adjust your tactics accordingly.

Step #2. Be Clear and Specific

Setting goals includes envisioning a certain point in the future. However, it would be best if you didn’t stop at a general, low-resolution picture.

You must define all of the details of what you want to achieve.

For instance, aiming to increase your company’s sales is a low-resolution goal. It could be a good starting point, but if you want to ensure you’re progressing in the right direction, you should consider the specifics.

Exactly how much of an increase would you like to see in your sales? How would you want your business to change before and after you’ve reached that goal? Would you be willing to make sacrifices to get there and what would that entail?

There’s plenty of details to flesh out when setting your goals. If you do it right, all your efforts will become focused on the specific necessary tasks and the progress will become apparent.

Step #3. Establish Milestones

A common mistake in planning goals is that people tend to aim for the grandest achievement, disregarding the smaller but vital victories.

This approach can become draining very soon – you might be overwhelmed by how unattainable the set endpoint seems. To avoid the fatigue and discouragement, make sure to have several smaller goals set as milestones.

Reaching the milestones will give you that precious sense of achievement and progress and motivate you to keep going.

Good Goals Are the Way to Success

Aiming for something you can realistically achieve and having a good plan of getting there will set you on the right path. 

When you’re convinced your goals are the right ones, pursue them with determination. Great results will follow.

The Five Traits of Successful Entrepreneurs

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About 20% of businesses fail during their first year. So which traits should an entrepreneur have to become successful in a highly competitive environment?

Starting a business isn’t easy, especially in the modern environment that favours sound, long-lasting practices and a severe loss-aversion mentality. 

While not everyone is born to be an entrepreneur, there are skills one can learn to jumpstart a business venture in a competitive industry. And even be successful at it.

It’s important to note that some traits can’t be learned and are what separates a good entrepreneur from the best. The list of traits found here includes both intrinsic and trainable skills.

1. Inventiveness

One of the key features of successful entrepreneurs is their ability to come up with new ideas and expand on existing features. That’s why most entrepreneurs start their business with an idea that deviates from and improves upon the current norm.

While it’s almost impossible to teach someone how to be inventive, all people possess virtually unlimited imagination and potential. Tapping into that can lead to exciting results.

2. Confidence

One of the crucial parts of a successful start-up is the pitch. A good entrepreneur needs to have confidence both in themselves and their idea. That confidence is what will sell the start-up to potential investors and allow the business to begin operations.

Entrepreneurs will face rejection along the way, and only those who remain confident enough to keep going will bounce back and thrive among the competition.

3. Work Ethic

The term ‘passion’ is often thrown around as a desirable trait, but it would be more proper to call it work ethic. 

While an entrepreneur will enjoy doing what they created, a proper work ethic is what truly matters.

An entrepreneur needs to put long hours into their business to take it off the ground. That won’t be possible if they don’t love their work or have a developed work ethic to sustain it.

4. Money Management

One of the critical reasons start-ups fail over their first few years is the futile acquisition of capital. This isn’t so surprising, seeing as banks are unlikely to provide large loans. 

Other methods of raising capital, such as crowdfunding or investing, often depend on tangential skills like the ability to persuade people about the idea.

While having a good idea is the key for a start-up, obtaining and managing the capital required to make it into a reality is what separates a successful start-up from a failed one.

5. Knowing Market Needs

While not a trait per se, knowing that an idea for a start-up has real market value and need is what gets a start-up off the ground. 

The ability to develop and market an idea into an attractive product relies on more skills than one, but they all need to combine to deliver to the masses.

According to Forbes, most start-ups fail due to a lack of market need. Therefore, identifying whether a novel idea is useful and adjusting it to cater to the audience should be one of the top priorities.

Learning What It Takes to Succeed

Thankfully, most of the traits of a successful entrepreneur are learnable. For all others, there are always people who can help out and make up for personal shortcomings. 

Teamwork makes the dream work, after all.

What To Do When a Client Won’t Pay

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Many business owners have experienced the frustration of trying to collect payment from a client who simply won’t cough up. If you are having trouble getting paid, then it is important to take action quickly before the situation becomes even more difficult. In this blog post, we will discuss what to do when your clients won’t pay, and how to avoid this from happening in the future.

Don’t Make Assumptions

When your client does not pay, it is easy to assume that they are being completely irresponsible. However, sometimes clients have legitimate reasons for why payment has not been sent out. It’s important that you don’t accuse them of anything until you know the full story. This is especially true if your client has always been reliable in the past – give them the benefit of the doubt.

Keep Your Cool

In the heat of the moment, it can be easy to want to send a strongly worded email or make an angry phone call in order to get your point across. However, if you take this approach, then there is a good chance that you will only make matters worse and put future business at risk. It’s important not to jump the gun.

Send Reminder

Your clients are only human. If a client is late to pay, resend the invoice along with a polite notice that their payment is now past due. Don’t be demanding or accusatory. You should also make it as easy as possible for them to pay by including links or buttons to your accepted methods of online payment.

Contact Them Via Social Media

If your client doesn’t respond to your follow-up emails within a few business days, try contacting them on social media instead. In some cases, a client might simply be neglecting their inbox and so it’s worth trying another channel. Again, it’s important to maintain professionalism and not accuse them of disappearing on you.

Send an Attorney’s Letter

If you still have not received your payment then it’s time to send an attorney’s letter. You can arrange this for an affordable fee and often the client will be unnerved enough by the suggestion of legal action that they pay up.

Small Claims Court

If you have exhausted all other options, then it’s time to take your client to small claims court. This is a last resort and it’s a fairly costly option, so it’s important to weigh up whether or not it’s worth it. Unfortunately, if this is not the case then it’s best to cut your losses and focus on preventing this kind of behaviour in the future.

Protect Yourself

It’s always better to be safe than sorry. Take steps now that will protect you in the future and avoid having this problem again.

One way to do this is by introducing late fees. Your cloud accounting software should be able to calculate and add these for you automatically. 

If you do decide to introduce late fees, be sure to communicate this clearly with your clients and give them plenty of notice so that they can’t accuse you of taking them by surprise.

You should also make sure that all of your clients are aware of how to pay online so that they have instant access to their account details at any time.

In addition to this, you should consider asking for payment upfront to protect yourself.  This could be a 30%, 50% or even 100% deposit.

Finally, make sure that you have the right legal contracts in place  so that you are better able to take action if a client still fails to pay.

Conclusion 

If you find yourself in a situation where your client hasn’t paid you, it’s important to keep calm and take the proper steps. Make sure that before taking legal action, you’ve exhausted all other options by sending reminders and social media messages. If these tactics still do not work, then consider contacting an attorney or small claims court for assistance with collecting payment from clients who won’t pay on time. Finally, make sure to put the right steps in place to protect yourself against this situation in the future so that you can concentrate on running your business rather than chasing up payments.

How to Make Good Use of Business Downtime

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Busy business periods bring their own challenges, but “downtime” is often much more worrying. However, it can actually be a great opportunity to give your business some TLC, focus on strategy and make overdue improvements. Let’s take a look at how to make the best use of business downtime so that you emerge stronger than ever.

Focus On Your Digital Presence

Your website is one of the biggest tools in your business arsenal. It’s where people go to find out more about you and it’s how they get in touch with you if they want to buy something or ask a question. So, during downtime, take some time to focus on your  website and create a better user experience.

Don’t forget about social media, either.  Your customers are online looking for information and engaging with brands. Make sure that you’re posting regularly to your social media channels and staying in touch with your audience. 

Downtime is also a great opportunity to devise a content strategy and prepare posts months in advance. Social media marketing is an important task but when you have a lot of urgent business to attend to, it often gets brushed aside. Use periods of downtime to rectify this and upgrade your online presence.

Networking

Networking is a great way to get new business and learn from other people. It can also be difficult if you’re juggling your day job with networking events, so downtime could be a good opportunity to catch up. Business is all about relationships, so take this time to engage with your contacts and set yourself up for future opportunities.

Check in with Clients

You may not be able to check in with your clients when you’re busy, so use downtime to drop them a quick email or phone call to see how they’re doing and let them know that you haven’t forgotten about them. This will keep the relationship strong and leave the door open for future work.

Update Systems And Processes

Doing things manually or with out-of-date systems can be a huge drain on your time and energy. During downtime, why not take the opportunity to upgrade some of your systems? Replacing outdated software or updating business processes can also save you a lot of money in the long term because it makes things easier and more efficient for everyone involved. This will prevent you from wasting resources and free up more time to focus on other areas that need attention. 

Clean Up Your Finances

If your business isn’t doing well, you might be tempted to ignore the numbers and hope that things will get better on their own. However, it’s important to take a step back and make sure your finances are in order because this could help prevent problems later on when there is less time for emergency fixes. Whether you need to implement better bookkeeping practices, implement better cash flow management systems or shop around with vendors, now is the time to do it. 

Get Organized And Invest In Storage

Are your office supplies filed away safely or are they just stacked up on a desk somewhere? Are you storing important documents incorrectly which means that you could lose them if there’s ever an emergency? Downtime is the time to get organized, clean things up and digitise your files. This will save you time and money in the future.

Conclusion

It can be difficult to keep up with the demands of running a business. That’s why it’s so important for owners and managers to plan ahead for periods when they have less work. These quiet times represent a fantastic opportunity to take care of items that you might otherwise push off and prepare your business for future success. With a little bit of foresight, downtime can prove to be a valuable opportunity to make some much-needed improvements to your organisation. 

7 Ways to Save Time and Money with Cloud Accounting Software

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Cloud accounting software is becoming more and more popular, with many companies deciding to switch over. This type of software can really speed up and streamline your processes and give you a greater insight into your finances. In this article, we’re going to look at some of the ways that cloud accounting software can save you time and money.

1) Automated Invoicing

Cloud accounting software enables you to automate much of your invoicing process.  This means you can get invoices out faster, which helps to improve your cash flow. You’ll also have a digital record of all the information on an invoice, so it’s easier to keep track of who has paid and who hasn’t. Furthermore, your software will be able to calculate and add late fees for you and send automatic reminders to clients who are yet to cough up.

2) Better Cash Flow  Management

Managing cash flow is a vital part of running any business, but it can be difficult when you’re only using spreadsheets. With cloud accounting software, you’ll have access to much better tools for monitoring and assessing your company’s financial health. You’ll also save time because the automated invoicing features mentioned above mean you won’t have to waste hours chasing late-paying clients.

3) Expense Tracking

Another time saving feature of cloud accounting software is expense tracking. This feature enables you to keep track of all your expenses and log them into the system automatically. You can then compare your budget against your actual spending at any time so that you can see where money has been spent or saved.

4) Centralised Information

One of the best things about cloud accounting software is that it gives you a centralised view on all your accounts.  This is really helpful, especially for companies who have branches in different cities or countries around the world. All this information will be available to employees wherever they are and whenever they need it, meaning everyone can work more efficiently and make fewer mistakes.

5) Real-Time Reporting 

Another great benefit of cloud accounting software is real-time reporting.  This means that you’ll be able to access your reports and information whenever you need it, so if something crops up or a decision needs to be made quickly, it’s right there at your fingertips. This enables you to make sage and snappy decisions about the future of your business. 

6) Accessibility

Another benefit of cloud accounting software is accessibility. Thanks to cloud technology, you’ll be able to access all your accounts wherever and whenever you need to. Most major cloud accounting providers have mobile apps that enable employees to log expenses or update information whilst on the go.

7) Cloud Security

Finally, cloud accounting software provides you with more security than traditional desktop software does. All of your data is encrypted and backed up regularly so if something happens to one version of a file, there are always back-ups available which can be restored in mere minutes. You’ll have peace of mind knowing that your important data is safe and secure. Data breaches can cost businesses thousands – or even millions – of dollars, so this is a real advantage.

Conclusion

There are numerous benefits of cloud accounting software, and they impact your entire business. This technology gives you greater financial visibility and thus empowers you to take well-informed steps towards a stronger and more profitable business. Whether your business is well-established or just getting started, it will definitely benefit from the use of cloud accounting software.

4 Ways to Improve the Financial Health of Your Small Business

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A business health check is never a bad idea and even if you’re doing okay, there are always ways to improve. It’s important to closely monitor your business’ “vital signs” and look for ways to fine-tune your processes to ensure that it continues to thrive. Let’s take a look at four ways to boost the financial health of your small business.

1. Identify New Streams of Revenue

Markets can shift rapidly, which means you should always keep an eye on how the landscape is evolving and look for new opportunities to capitalise upon. Identifying new streams of revenue can help to future-proof your business and increase your profits. Take a look at your current sources of revenue and identify which ones may deserve more of your attention. You should also give your employees a chance to offer their ideas on new ways to generate income.

If you’re struggling for inspiration, why not examine business owners who were forced to rapidly pivot during the covid-19 pandemic. Event photographers, for example, began selling digital prints and online courses. Restaurants switched to takeaway only and started offering special delivery packages for occasions such as Christmas and Valentine’s Day to boost sales.

2. Increase Profitability 

Profitability is key to the longevity of a business and an important indicator of success. Therefore, you should always be thinking about ways to boost your margins. Adding revenue through new sources of income, raising your prices or increasing average customer spend is one way to do this. 

However, it’s important to keep your costs as low as possible, too. Regularly review and remove expenses that don’t add value to your business or customer. Consider eliminating products or services that do not generate significant revenue or profit so that you can focus on the ones that really make you money.

Boosting your customer retention rate is another important way to increase profitability. Research shows that increasing customer retention by 5% can boost your profits by 25-95% because not only is retention significantly cheaper than acquisition, repeat customers also spend more.

3. Manage Cash Flow 

Profitability is important, but cash flow matters just as much so don’t sacrifice one in favour of the other. Plenty of profitable businesses have gone bankrupt because their assets were tied up and they ran out of cash. It’s vital that you stay on top of your monthly incomings and outgoings to ensure that your business stays flush with funds.

Insight is the key to effective cash flow management. You must carefully keep track of all the money that enters and leaves your business. It’s important that you understand your days cash on hand – namely, the number of days you have until cash runs out. Ideally, you should have 45 days or more.

You can improve cash flow management by:

  • Staying on top of your invoices
  • Shortening payment cycles
  • Introducing late payment fees 
  • Offering bulk or annual discounts 
  • Using a business credit card 
  • Carefully managing inventory
  • Creating a cash reserve that you can dip into in case of emergency

4. Increase Productivity 

Increasing productivity means that you can do more without spending more, and thus improve profitability. Research by Gallup found that highly engaged teams show 21% greater productivity, so it’s important to motivate your staff and ensure that they are working at their best. 

89% of HR leaders agree that regular feedback is crucial to building a successful team, so prioritise regular check-ins and make your employees feel heard. Offering flexible working options can also be helpful to increase productivity as research shows that this makes staff feel appreciated. AirTasker also found that flexible workers put in an average of 1.4 extra days per month than traditional employees, which adds up to over 16 days, or three weeks, per year. 

Summary 

However well your business is doing, there are always ways to improve. Just as it’s important to check in with your employees regularly, it’s also important to schedule time to review your revenue, profitability, cash flow and productivity to eliminate potential problems and identify areas for improvement. This will ensure that your business stays financially healthy and continues to thrive for years to come.

Cash is not profit and vice versa

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The purpose of a business is to make money, and that means you have to know the difference between profit and cashflow.

Net profit is what you have left after you deduct all your business expenses from all your revenue. You change net profit only by changing the things that affect revenue and expenses.

For example, if:

  • You renegotiate with your suppliers, you may get stock cheaper, or carry less inventory
  • Your staff engage with customers better, you can learn more about what they do and don’t like – and get more business
  • You can roster staff differently, you may be able to run your business more efficiently.

Cashflow comes from various sources. However, it also covers operating expenses, taxes, equipment purchases, repayments, distribution, and so on. 

Note that a profitable business does not always have good cashflow. And a business with good cashflow is not always profitable. For example, you can have good cashflow, and loss-making expenses.

To work out how fast you can grow your business, you need to look at your projected cashflow. We can advise you on this.

Keeping cash crowned as King

Your business can’t survive without cash.

The following six takeaways are essential for business success:

  1. Protect your cash position, by knowing what it is. Build a cashflow statement and always keep it up-to-date. If you foresee a shortfall, start at once to fix it.
  2. Create a cash buffer as an insurance against unexpected difficulties.
  3. Protect your cash position against revenue shocks, by maintaining a balance equivalent to at least two months of operating expenses.
  4. Be realistic with revenue expectations. Take action now if it looks like sales are not going to get you to breakeven.
  5. Credit checking up front will reduce the risk of customer non-payment. Make sure you follow up with clear payment terms agreed in writing. Communicate regularly with customers and automate where possible.
  6. Every dollar you spend reduces cash reserves. The best way to protect your cash is to create a budget for the spend you know you need, and stick to it.

Looking to improve cashflow? Make a time to talk to us. We are here to help.

The Fear of Money and Four Ways to Overcome Your Money Blocks

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Few people are wizards at making money. But it IS possible for anybody to get rid of their money blocks.

Businesses exist to make money. But even with that goal in mind, it doesn’t mean it’s an easy ride to the top.

Money blocks are all too real and common in personal and business finance. Learning to overcome them is an essential thing to do early on.

Here are four ways to help you overcome your own fear of money.

1. Acknowledge the Fear

As is the case with any fear, the first step to overcoming fear of money is to recognise it. Do that and it becomes easier to identify what’s actually scary.

Do you fear the thought of losing money? Or do you fear not making enough money?

Acknowledging your fear, whatever it may be, helps identify the real underlying issue. 

2. Ask for Help

Whether it’s personal or business finances, there’s always someone out there that knows more. 

People who hit money blocks and develop a fear of money are those that never ask for help. But there’s no shame in asking someone more qualified about what you can do in this regard.

Accountants, financial advisors, successful investors and entrepreneurs are all people that may be able to help. Salespeople and professional marketers can also provide insights into specific money problems.

3. Ask for Money

Are you not generating enough revenue? If so, why not consider asking for money? 

Do your due diligence on potential partnerships, investments, and loans.

In some cases, overcoming a money block simply requires an influx of capital from outside sources. It may not seem like the most appealing idea, but it is an option.

4. Develop New Money Habits

Sometimes, the best way to overcome a block is to step outside the comfort zone. 

People run into money blocks because they are fixed in their ways. That’s why making adjustments and developing new money habits can help overcome the fear of money.

It will take work and time. But you already know that one’s mindset can’t be changed in an instant. 

The idea is to try new things and make progress. After all, small successes add up and can alter the mindset.

Taking Action

The fear of money and money blocks don’t always cast a veil on what needs to change. It’s possible to identify solutions and still not overcome fear.

Why?

It’s because the fear of failure can also creep in. When that happens, people refuse to take action and make the required positive changes.

Tackling the fear head-on is always a good thing. Identify what action you should take and pull the trigger to break through the money block.

Learn to Overcome Common Money Myths

There are well-founded fears in the world. But when it comes to entrepreneurs and business owners, the line between facts and myths involving money is not all that clear sometimes. 

It’s vital to learn more about the economic environment as those without knowledge of this area can fall prey to money myths. 

They can end up creating entirely fictional and impossible scenarios for why they have money blocks. That’s also a reason why it’s difficult to see the solution when the issue doesn’t have a strong foundation to stand on.

Do you want to move past your money blocks? Book a call with us today www.sunnysideaccountancy.co.uk/contact

The Four Cash Flow Forecasting Blunders That Lead to an Inaccurate Financial Picture

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Cash flow forecasting is a powerful tool for businesses of all sizes. To make it all the more effective, avoiding these common mistakes is crucial.

Making projections can be incredibly beneficial for controlling the financial situation in a business. Because of this, financial reports are the most important aspect of company accounting. 

The forecast serves as a foundation for future strategies and plans. Unfortunately, there are some mistakes commonly made in the process. 

If a cash flow forecast isn’t done properly and fails to illustrate crucial financial trends, it can prove quite damaging to a business. 

In this article, we’ll examine some of the pitfalls of improper cash flow forecasting that are most likely to put a company in turmoil.

Mistake #1. Incremental Income Line

Since cash flow forecasting depends on the income from business operations, projections of the incoming cash must be handled with care. And a common mistake when it comes to this aspect is making the income line incremental. 

For example, setting growth goals from one percentage to a higher one isn’t enough. A correctly done income projection should rely on such contributors as prices and volume while considering different divisions. 

In this way, the forecast will better reflect business performance and simultaneously raise attention about potential issues. 

Mistake #2. Inaccurate Data

Cash flow forecasting can’t be effective if it provides outdated data. Yet, many businesses fail to update their projections regularly. 

If there’s a large discrepancy between the actual numbers and those entered in the forecast, issues could amass.

Updates to the cash flow forecast should ideally be done weekly. When the projection is updated that often, it might not be a perfect forecast but it will vary only slightly.

Mistake #3. Not Calculating Differences

Difference calculations can provide valuable insight and prove quite useful for devising a business plan. For that reason, a well-made cash flow forecast should include those calculations. 

It’s even more efficient if they are expressed as percentages, as these will make certain expenses impossible to overlook and present a clearer picture than just considering numbers.

Mistake #4. Sticking to One Scenario

It’s always advisable to consider various ways certain business aspects can develop in the forecast period. 

For example, if sales projections are overestimated, the whole projection will quickly prove unreliable. That’s why it’s vital to consider different scenarios when creating a cash flow forecast, with a particular focus on the worst-case scenario.

Many businesses avoid considering such cases, but those should always be predicted before moving forward. A realistic approach to the projection is ideal and it should be a product of considering both extremes – worst-case and best-case scenarios.

Create the Most Accurate Cash Flow Forecast

Meticulously working on the cash flow forecast will serve as an excellent platform for future business planning. Taking the relevant data into consideration and making the forecast straightforward and understandable is crucial for every company.

Although a forecast will rarely predict with absolute accuracy, it has the power to lead the company in the best possible direction.