Have you done a cash flow forecast for next year?

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Have you done a cash flow forecast for next year?

Here are four types of basic financial reports and why they might be useful to you.

Now can be a good time to think about some of the issues that you've pushed to the back burner during the year.
 
One suggestion is to consider whether you're making the best use of the reports that your accounting software can provide. Your accountant and bookkeeper should be able to provide you with advice in this area, but while things are quiet you might consider taking a look at the reports and graphs that you're not already using, and see which might give you more insight.
 
1 Profit and loss. You almost certainly keep an eye on your balance sheet and the profit and loss statement, but what about the cash flow statement? Many of you will have reacted "of course!" and that should be a clue for the others. You might be making a profit on paper, but it should be a warning sign if the cash isn't coming in. 
 
2. Invoicing. Maybe you're not chasing payment from your customers (see below), you might not be taking full advantage of your suppliers' terms, or perhaps your stock levels are excessive. And as obvious as it seems, we note that businesses are often reminded to invoice customers promptly - a '30 days' invoice issued about two weeks after the goods or services were supplied means the terms are really 45 days.
 
3 Cash flow forecast. A customer might offer you a big order, but if the expenditure on the supplies needed to meet it (materials, labour and so on) has to occur before you get paid, it's possible you'll be temporarily short of funds to make other payments. Depending on your relationships with various suppliers you may be able to persuade them to wait, or you may have to find another source of funds, whether that's your bank or your personal resources. The point is that a cash flow forecast will warn you before you get into that situation so you can take pre-emptive action.
 
4. Aged debtors. This is another important report - unless you run a strictly cash business. This lets you see who owes you money, how much, and for how long. If a customer is taking longer to pay than the agreed terms, you clearly need to do something about it. In extreme cases that may involve legal action or engaging a debt collector, but it's probably better to avoid things getting that far - putting the customer on 'credit hold' may do the trick, or if you're lucky a polite phone call may be all that's needed. One common piece of advice is that you shouldn't delay taking action, but rather contact the customer as soon as an invoice becomes overdue.
 
5. Aged creditors. Similarly, an aged creditors report shows who you owe, how much you owe, and when the debt became or will become due. While we wouldn't suggest that anyone should get behind with their payments, an aged creditors report adds depth to the cash flow forecast and may help you decide who you should pay first.
 
Disclaimer: None of the above constitutes financial advice. Seek professional advice where appropriate.
Copyright © BIT (Business IT). All rights reserved.
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