One of the best ways to understand your cash flow is to decipher it, analyse it and forecast your financial future.
This not only gives you an indicator of your overall business health, but it can help you make informed decisions about company finances for the future.
Knowing how to effectively forecast your cash flow is a sure fire way of knowing where your financial situation will most likely be in the coming year.
What does your sales history look like?
The most effective way to figure out what level of capital your business will see in the near future is by looking at how you have fared in previous years.
Looking at actual, raw data of your month-to-month sales can be a solid indicator of where you are headed financially.
Use this date to consider things like incoming competitors, global events and other factors that could harm your business. Also consider events like if there was a rise or drop in business due to internal activities like new talent hire, before and after staff training.
Similarly, if your business is about to launch a new product, then expect to increase your forecasts.
Estimate Your Expenses
To get a fuller picture of your cash flow, you are going to have to estimate your fixed and variable expenses month-to-month.
Fixed expenses do not change at any point and include rent, salaries and insurance. Variables are, as the name suggests, variable in nature and can change from month-to-month.
These include stock, raw materials and labour costs. Just like with your sales history, to forecast you will need to estimate month-on-month to get useful estimates for the next year.
Crunch The Numbers
Once you have all of these numbers at hand, you will need to combine the data into a useful projection.
The best way is to take the cash balance from the previous month and add it to the current month’s projection. Then you subtract your projected expenses to obtain your projected cash flow. Rinse and repeat until you have a full year of projections.
Knowing how to effectively and proactively approach your cash flow means you’re able to understand how best to make your money work for you. With market trends and industry fluctuations constantly at hand, it’s critical that each business allocates enough time to look into each of these vital aspects.
Knowing your expenses versus income is an indication of your profitability. Learn how to effectively forecast your cash flow and make effective action plans to boost your earnings through our proven 4-It System so you can grow your business in less time. Click here for your FREE strategy call now. Limited bookings available.
Rob Kropp – The Profit Coach
About the 4It System for your business and life: The Make It, Manage It, Keep It, Grow It™ (4-It System) will help you structure your business in a way to make leveraged profit. Manage excess earnings so you can scale effectively. Keep more money in your top pocket. Then grow it, so you can play a much BIGGER game than just the business. Your wealth will expand as your financial freedom turns from a dream into a reality through building a business, living a life and leaving a legacy.
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