Cash Flow Forecasting For Small Businesses


Effective cash flow management can make or break a small business and so it is important to keep on top of it. We’ve compiled our top seven tips below to help you manage your cash flow.

Know The Sources Of Your Money, and Where it is Flowing

The first step to good cash flow management is to understand where your money comes from (who are your biggest clients and when do they pay) and where do you spend most of your money. Having a look at a cash flow statement can give you a snapshot of how your business is operating and it will also give you something to work from and improve as you work through this list. When looking at cash coming in make sure to look at the average revenue for each client and their payment terms (and whether they stick to them). For money going out of the business, you can look at the cost of customer acquisition and the churn rate (how many clients are leaving the business).

Starting with the cash flow statement will give you a better understanding of where you are currently and then how the rest of this list can help you manage your cash flow better.

Leverage Technology to Understand Your Cash Flow

Back in the day, you had to do your own cash flow forecasting manually, and by manually we mean spreadsheets. Cash flow forecasting is a difficult skill to master and when you’re a startup founder you have hundreds of other things to master and this might not be high on your list.

There are now a range of templates, apps and spreadsheets that you can use to forecast your cash flow. There are even business bank accounts that help with cash flow forecasting. Opening a business current account with Tide will give you access to a host of smart features through the Tide platform. This includes Cashflow Insights, where you can receive real-time forecasts and recommendations to help you manage your cash flow. Linking your cash flow forecasting directly with your bank account is useful because you know it is up to date with every transaction. Tide’s Cashflow Insights combines analysis of your account activity to learn as your business develops to give you accurate predictions about your cash flow.

Using an automated technology like the Tide business bank account means that you can remove this off the list of things to master as a founder.

Invoice as Quickly As You Can

As a startup founder it can sometimes be difficult to talk about money. And this extends to sending invoices for work done. You’ve been professional the whole way through, done an excellent job, and then you hesitate on sending the invoice when the job is done. This can happen because you don’t want to seem too keen to get the money in your account or your internal processes could be slow. Either way it can cause significant cash flow issues down the line.

As a company you should aim to get the invoice out as soon as possible after the work is finished. In many cases the invoices can already be prepared before the work is even finished which means that you can send it out as soon as possible. If you are uncomfortable about sending it out immediately when the work is finished you could have a conversation upfront with your client. Many clients are understanding about the cash flow pressures of a small business and so you can frame it in a way that is beneficial for both sides at the very beginning of the relationship. Explain that you’re a small business and so look to invoice as soon as possible.

Every extra day you delay sending your invoice will be a day that you definitely won’t get the money in your account. Every day can count in the early stages of a business.

Make Payment As Easy As Possible For Your Customers

You’ve sent the invoice out, great, but any complexity to getting you paid could slow down your client. You want to make payments as easy as possible for a customer. With many banks and invoicing software you can create a quick pay link that is embedded directly in the invoice – making a one-click payment a reality. You want your customer to open that invoice and pay it as soon as they can. Adding any friction to the process will slow things down and delay getting the money in your account.

Think of Creative Ways to Invoice

When starting out it is (understandably) easy to think that the power is in the hand of your customer and so you should follow their payment terms to the letter. Sometimes customers have no flexibility but depending on who you work with you might be able to alter payment terms to your benefit.

If traditionally you have invoiced 100% on completion of the job, ask if the client would be happy to pay 50% upfront and 50% on completion. This helps your cash flow and it also means that you won’t start working on a job until you’re sure the client is serious. You could also ask for 50% upfront, 25% a certain time later (2 months for example) and then 25% on completion.

You could also ask for 100% upfront and if they do that then you’re willing to offer a 10% (or whatever works for your business model) discount.

Keep An Eye On Your Fixed Costs

There is a point in most businesses where you ask yourself if you need to take on an office or hire your first employee. These are known as fixed costs – costs that you have to pay each month regardless of the revenue that you bring into the business. Before you sign a lease on an office make sure you think it through – is it really necessary or could you get by in a coffee shop for a couple more months? Or could you join a co-working space that offers flexible terms (1 month cancellation for example). This will help protect you from the natural ebbs and flows of a small business and mean you can trim costs if necessary if you have a bad couple of months.

Offer a Fixed Rate Monthly Package

For a business that charges by the hour (virtual assistant, graphic designers, personal trainers for example) it can be difficult to predict your monthly cash flow. A good alternative to this is to offer a fixed rate monthly package.

For example if you are a VA (virtual assistant) you could offer 10 hours of support per month for £350. If your normal rate is £50 per hour then the client is saving £150 per month. You can also let the client roll over a number of hours per month if they don’t use them. In this example the client is saving money each month on their fixed costs and you can accurately predict your cash flow. It might not be quite as profitable as charging full cost for every hour but the predictability will help you plan out your cash and forecast over a longer period of time with more certainty.