As an eCommerce entrepreneur, one of the most important things to keep in mind when managing a business is always having complete control over your cash flow. This can be achieved with the help of a competent accountant or by utilising every tool at your disposal.
One such tool is Float, a resource management app that acts as a companion to the Xero eCommerce accounting software. Through the use of Float, you can predict your cash flow and integrate it seamlessly with Xero to forecast what your bank balance will look like in the following week, month, or year!
What is cash flow forecasting?
Cash flow forecasting is a way of estimating the amount of cash that goes in and out of your business across all areas over a period of time. By looking at your income and expenses, you can get an idea of what the state of your cash flow will be by using tools like Float and Xero. Knowing how to predict your cash flow will help you make critical business decisions about activities like funding, investments, and capital expenditures.
Some entrepreneurs, however, fail to realise how cash flow forecasting can be leveraged to grow their business. Here are some advantages of forecasting that you may find beneficial to you and your company.
Understanding Possible Outcomes
For many small businesses, one late payment can cripple your business operation, especially if you’re still starting up. If you have the insight to model alternate scenarios, you can understand how different situations can impact your cash flow. This works well with business planning. Testing out possible outcomes gives you time to put your plan into action!
Planning for Upcoming Cash Gaps
Cash gaps can’t always be avoided in a business. But being able to see them before they hit you allows your clients to put plans in place to avoid those cash gaps! Applying for loans, reducing payment terms, and finding alternative financing options are vital steps to address such occurrences.
Tracking Your Spending
Time-sensitive goals and targets are part of business planning. Through cash flow forecasting, you can know precisely when you’re going to reach those targets even before it happens.
Those goals can have some influence on your budget. But seeing cash movement will help you and your small business accountant propose more realistic and accurate budgeting in the future.
Forecasting also lets you know if you could reduce spending—which can result in a cash surplus. Most business owners get surprised and a little confused as to what to do with the excess cash. Although rare, a cash surplus can be used for reinvestment or repayment of loans to keep your business running efficiently.
Conclusion
Using cloud-based software like Xero and Float can help you predict crucial changes in your business. Poor cash flow visibility and management can be the bane of your business. It only makes sense to invest in the right tools to help you better manage your cash flow. Whether it’s for anticipating cash gaps or making better budgeting calls, cash flow forecasting is a helpful tool for any business.
Understanding the ins and outs of your business’s finances can be a little daunting at times. Let the ECommerce Accountant help you figure out all those numbers. We are a team of business advisors offering eCommerce accounting services to small businesses. By implementing accounting software like Xero and Quickbooks, we help you manage your business efficiently. Book a free strategy session today!