Ann Juliano, CEO & Founder at SME finance provider, Muse Finance, explores…
During periods of uncertainty, planning for the future might seem counterproductive. But however difficult it may seem, and whatever the size of your business, building a financial forecast should be a priority.
Here are my five tips for leaders looking to create a foolproof forecast.
1. Understand your cash flow
Start by assessing your yearly cash flow.
When looking at the money flowing into the business, remember to factor in your payment terms, and the period of time that usually elapses between delivering work and getting paid. Once that’s done, compile your expenses to get a sense of what you’ll be paying out. This will include things such as employee payroll and office rent, along with any other overhead costs.
Once this is done, you should have a fairly comprehensive view of your business’s cash flow for the year ahead.
2. Prepare for change
Next, think about any changes which you see coming down the line. Perhaps you’ll be implementing a new strategy or change of direction, such as launching a new service that will require you to hire new staff, for example. You should also account for recurring trends that happen seasonally, such as peaks and troughs in customer demand.
Whatever they are, weigh up these changes and consider how they will impact your cash flow.
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3. Understand your tax liabilities
Ensuring that you are prepared for how much tax you will have to pay is another vital part of business forecasting.
At this point, you should have a good understanding of your expected cash flow for the year, which is important because it will help you estimate your tax liabilities. This means that you can plan proactively, based on the taxes you are required to pay. This might include corporation tax if your business is a limited company, and National Insurance.
If you are unclear, it’s always worth seeking advice from an independent tax specialist.
4. Think about the finance options available to you
Unforeseen costs are a reality for every small business, and cash flow pressures can appear seemingly from nowhere.
As a result, it’s worth taking the time to look at the financing solutions for your business, even if you don’t currently need to access funds. Do your research as many business loans can have minimum revenue requirements for smaller businesses. At Muse, we recognised the need for small and medium-sized businesses to access agile and efficient funding, which is why we built our invoice financing solution to provide just that.
5. Use technology to unlock transparency and efficiency
At the heart of each of these tips is the importance of visibility. If you can’t see where your money is coming from and where it’s going, it’s impossible to have control over your business’ cash flow.
Therefore you should ensure you have the insight and transparency you need. There are many digital tools that can help with this, whether it’s invoicing software that integrates with your business banking, or a cash flow tool that provides up-to-date financial data to inform your projections.
As well as offering access to finance, Muse has also built a product that provides business owners with the tools and data they need to feel in control of their money. Because in uncertain times it’s more important than ever that business owners have the ability to plan for the future.