Start projecting cashflow

Building a cashflow forecast for your business

Looking at the performance of your business starts with cashflow. This is an essential aspect to ensuring you can meet your commitments and helps you make informed decisions about how you run your large or small business in New Zealand. Cashflow is about how much money comes into your business and when and how much money goes out. Plus, it's what cash you have available in your bank account to manage the potential timing differences of both.

• You may choose to create a spreadsheet to record this information. You'll find plenty of tools and resources available to choose from. You can also use your existing accounting software like Xero or MYOB to utilise the data you already have at your fingertips. 
• If you want to ensure you ask the right questions about your cashflow for a precise forecast, consider getting a second opinion from your accountant or bookkeeper. Ask them to put your accounts through their paces. The adage about the end product being only as good as the data entered is accurate in this instance.

Making a start

Identify what cash you already have available (your bank balance); then, you will need to predict what you think your income and expenses will be. Look at your business costs and income month by month. You can use your historical financial data to identify your finances more accurately. Think about how long your forecasting plan will be. Is it over a 12 month period? Or is it more appropriate to build more long-term forecasts? If so, this will help you gain industry insights into relevant trends and future financial support that your business may need.

Gather as much detail as you can on your outgoing payments - these need to be as accurate as possible so you get a clear view of how your bottom line will look. For example, suppose your business cashflow forecasting includes increased income from additional employees or expansion. In that case, this is expected to come with extra costs - make sure to address this in your forecast. Decide if you want to include GST in your planning (the main point in cashflow forecasting is to be consistent).

Adjusting the numbers

For businesses preparing their cashflow forecast, factoring in any future impacts is key. For example:

• Have any local or international events impacted your industry and geographical location? For example, what percentage decrease or increase do you predict on turnover and net profit, and how long? Use solid market research as well as your sales history as a tool to calculate accurate sales forecasts. If you haven't started your business yet, thoroughly research your target market to assess realistic future sales levels.
• You should also consider peak seasonal periods - cashflow usually isn't consistent all year round.
• When you estimate your sales for a specific period, consider how feasible this number is. There are only so many hours in the day, and you'll only be able to deal with a certain number of customers or produce a limited number of units. Double-check you can physically do the work you're forecasting.
• Remember, you can't always guarantee customer payments will be made on time, so factor in late payers.

Further help

It's more than likely that not all businesses will have the historical numbers to base their cashflow forecast on, so where do you begin? You may like to look at some industry benchmarking planning and management tools to get a feel for where you should be aiming. Remember that expert advice could also be invaluable to setting you on the right path. An accountant is a good starting point, but you could also consider a business mentor too. Forecasting takes a village!

Next steps

• Build your business plan to tell your story and link it to your cashflow forecast. This will give you the what, why and how you will achieve your aspirations.
• Are you prepared for tax time? If you are worried about not having cash set aside to finance your tax and GST commitments as they fall due, it's a great time to talk to your bank about setting up a separate account and a payment plan.
• Get in touch with ASB by enquiring online, visit a branch, call 0800 272 222 or contact your banker for more tips and tools for managing the incomings and outgoings of your business.