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To accurately forecast your company's cash flow, it's not just your expected income and expenses you must account for

by , 24 November 2014
With 2015 just around the corner, you need to prepare and forecast your finances. But this doesn't just include looking at what your actual income and expenses will be for the coming year. You also have to look at the amounts that might come in or go out of your company as additional income and expenses.

These are the amounts that can really throw off your forecasting if you don't include them.

That's why, today we're going to reveal how to accurately calculate your additional income and expenses in your company's forecasting...

 
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Use these two steps to accurately account for your company's additional income and expenses when forecasting your cash flow 

 
Step 1: Record any other cash amounts you expect to come into your business
 
These are amounts that fall outside your usual income. This includes:
 
• Interest you receive;
• Loans you expect to raise;
• Proceeds from the sale of assets, etc.
 
Now you won't always know this information in advance. For example, your cash flow calculations could show you have to borrow money to meet any anticipated cash shortfalls. 
 
As a result, you need to continually adjust and balance these predictions so the steps you take to cover one area don't lead to loss in another. 
 
Now for your unexpected expenses.
 
Step 2: Record any other cash outflows (unexpected expenses)
 
List each month, the cash outflows that aren't part of your normal operations and you don't often  include in your budget. These include any loan repayments, any asset purchases and provisional and expected assessed tax payments.
 
These are difficult to assess as you can't accurately predict them. To help you do this correctly, check your budgeting and expenses for the previous year. Look for any unusual expenses such as loan payments, membership fees and unexpected repairs. This can help you determine how much money you might need to spend on your unexpected expenses, even if you can't determine what they'll be. 
 
According to business.govt.nz, the best way to forecast for your future expenses is to be comprehensive. The more detailed, the better, even if it means drilling down into the petty cash and the 'Friday night social events budget'.
 
To gain this information, you have to look at every aspect of your company's spending habits. For example, look at:
 
How often you hold company events;
How often you replace and repair assets;
How often you purchase new supplies;
What you spend on general entertainment; and
How often you take out loans.
 
This will give you the information you need to predict your spending habits and determine what your unexpected expenses may be.
 
By following these two steps, you can accurately predict the amount of unexpected income and expenses your company can expect in 2015.
 
For more information on cash flow forecasting, check out the Practical Accountancy Loose Leaf Service
 


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