Managing cash flow is a critical aspect of running a successful small business. For SME founders, accountants and bookkeepers, understanding and implementing effective cash flow forecasting can be the key to financial stability and growth.

In this guide, we'll explore what a cash flow forecast is, why it’s important, how to create one and how Mimo's automation solutions can streamline the process.

What is a cash flow forecast?

A cash flow forecast is a financial tool that estimates the amount of money expected to come in and out of your business over a specific period (weeks, months or years).

It provides a clear picture of your future cash position, which can help you predict periods of surplus or shortage. A forecast will typically include projected income from sales, loans or other sources as well as anticipated spending such as payroll, rent, inventory costs and supplier payments.

For SMEs, accurate cash flow forecasting is vital. It enables business owners and their accountants or bookkeepers to plan for upcoming expenses, ensure timely payments and make informed decisions about investments or cost-cutting measures. By predicting cash highs and lows, businesses can take proactive steps to maintain financial stability.

Benefits: Why is cash flow forecasting important?

Implementing cash flow forecasting offers several key benefits. Good forecasting helps you:

• Predict future cash position: With forecasting, you can identify potential cash shortages in advance, giving you time to arrange for necessary funding or adjust expenses accordingly

• Ensure timely payments: Accurate forecasts can enable your business to meet financial obligations to suppliers and employees, helping to develop and maintain good relationships and avoid late payment penalties

• Inform financial planning: Understanding your cash flow helps in making strategic decisions, such as planning for expansions, hiring, investments, or identifying areas where cost reductions are possible

• Support loan applications: Lenders often require cash flow forecasts to assess the financial health of a business before a loan can be approved. A well-prepared forecast can improve your chances of securing financing if and when you need it

How to make a cash flow forecast

Creating an effective cash flow forecast involves several key steps:

1. First, you need to decide on a forecasting period – determine the time frame for your forecast, which could range from a few weeks to several months or even a year, depending on your business needs.

2. Next, list all income sources. This should include all expected money-in, such as sales revenue, grants, tax refunds, loans and any other income.

3. Then, list all business outgoings. This should account for all anticipated expenses, including operational costs, salaries, rent, tax and other liabilities.

4. Using this information, subtract the business’s total outgoings from its total income to determine the net cash flow for each period.

5. Make sure to monitor, review and adjust your forecast as needed to reflect actual performance and any changes in your business environment.
   
   
   

How Mimo helps you automate your cash flow forecasting

Want to simplify your cash flow forecasting processes? Mimo can help.

Powering automated accounts payable and accounts receivable, our smart solutions help you stay in control of your cash flow and power accurate forecasting so you can get a clear picture of your business finances. 

By streamlining invoice processing, payment collections and reconciliation, our features reduce manual work and minimise errors. Plus, seamless integration with platforms like Xero and QuickBooks keeps financial data synchronised, making forecasting effortless.

Want to know more? Get in touch with a member of our team.