Cash flow can make or break your business. With an efficient cash flow management strategy, businesses can drive their growth plans. A US Bank study has disclosed that a whopping 82% of businesses failed due to poor cash flow management. The thumb rule of any business is ‘your expenses should never exceed your existing cash’. Although organisations have to spend money for R&D, marketing, and other costs to achieve their business goals, it is crucial to get more money in than you spend.
You can do this through cash flow projections.
It is only natural for businesses to want to grow. A detailed cash flow projection can ensure that you sustainably achieve your business goals. With forecasts, you can effectively eliminate guesswork and make data-driven decisions.
To build a robust cash flow forecasting model, you need to understand how your business is utilising cash. There are four simple exercises you need to undertake to make projection models.
- Tag every expense you make with a category. The classification could be department-based or criticality-based. This helps you give a high-level overview of what percentage of money is going where so that when the need arises you know exactly what expenses you can offload.
- Understand market standards to set benchmarks on your expenses. These benchmarks act as your threshold to optimise your spending.
- Gross overspending has serious repercussions, so you must do a cost-benefit analysis of your expenses.
- Understand the schedule and volume of cash that flows into your business. Keeping a track of receivables will manage expenses in an informed way.
This approach to building a cash flow forecasting model will give you visibility into your financial health. But how do you use this strategy to fuel your growth plans?
Once you have a cash flow projection in place, then it all depends on how to shuffle your revenue chunks to scale your business. Sticking to your forecasts will avoid overspending. Below we list how forecasts help grow your business.
Cash is necessary to scale. Your forecasts will help you understand the kind of investment you can make. You can add the estimated cost to the projection model and see the health of your cash flow to make a decision.
The ideal pricing model is a boon for businesses. One way to evaluate if your pricing is appropriate is to review your forecasting model. You can assess different scenarios like how your financials will look if you reduce your pricing by, say, 10% or how profitable you will be by raising it by, again, 10%.
Planning a budget for marketing and setting the campaign objectives can be made easy with cash flow forecasts. You can learn what revenue you’re generating for every 1000 bucks you spend on a campaign.
Companies tend to over-hire when they see a sudden surge in demand for their services. But with disciplined hiring practices, you can curtail unwanted operating costs. For example, you can very well hire a freelancer to do a short-term job instead of recruiting a full-time professional.
Knowing how much cash you have available will enable you to make bold and necessary decisions in times of crises and disruptions. You can build a battle chest by setting an emergency fund.
Managing cash flow is a tedious and error-prone task. However, with a robust cash flow management platform like BFM (Business Finance Manager) you can simplify the process. ZikZuk BFM seamlessly syncs with your accounting software like Tally and tackles cash flow management problems with capabilities like automated payment collections and cash flow forecasting. You can also avail of a credit line from ZikZuk based on your cash flows.
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