Small business owners often feel like they have so much on their plate, that it’s nearly impossible to reach beyond day to day concerns of running a business and think strategically about the future. However, it’s crucial for every small business owner to do that, especially when it comes to cash flow. If you run a small business, you need to know where your cash is coming from and where it’s going—every single day.
If you’re using capital from a business loan or line of credit to run your business (or, like many entrepreneurs, you intend to do so in the future), you’re going to be paying fees, or interest. That means it’s all the more important for you to maximize the value of your capital, and to minimize your fees.
If you want to get a better handle on your cash flow, and you want to make the most of your business loan, you can use cash flow forecasting to help manage your funds and keep the big picture in sight while reducing the stress of uncertainty.
Let’s look at some common questions about cash flow forecasting and how it can help you improve your business, plus ways that you can use cash flow forecasting to make the most of your small business loan.
What is a cash flow forecast?
A cash flow forecast is essentially an estimate of the amount of money that will be coming into, and going out of, your business over a certain period of time. To calculate your cash flow, you’ll need an accurate gauge of the amount of cash you have now, the amount of cash you expect to come in (from all sources), and the expenses you expect to encounter.
A cash flow forecast is helpful for many reasons, especially because it takes into account many different financial variables, which can help you get a handle on both your short-term cash needs and your longer-term financial goals.
Why do cash flow forecasts matter?
To keep your business running, you spend cash every day on employee wages, equipment, marketing, taxes, and much more. Many businesses ultimately fail not because they aren’t offering a great product or service, but because they can’t effectively manage the cash flowing into and out of their business.
Cash flow forecasts help solve that problem. By getting a clear picture of what your cash situation will look like at any given time, you can accurately plan for how much money you’ll need to have on hand, and what decisions you should make leading up to then to make sure that that can happen.
How can cash flow forecasting help you get the most out of your business loan?
If you’re launching a business, you may need to secure funding to get the business off the ground. To do that, you may need to apply for financing, such as a business loan or line of credit. To secure the right business loan for you, you need to prove that you can run a business that will be profitable. A cash flow forecast will show a bank or lender that your business is worth investing in.
Once you secure your loan, cash flow forecasting can ensure that you make the most of that loan, by taking into account information about loan repayments, as well as the interest and fees you must pay on it. A forecast can show you how much money you’ll actually have after your loan is funded (which is often less than you expect, thanks to interest and other loan costs).
That forecast can also help you develop a plan for how much to allocate to loan repayment. While you’re planning your payments, you can also strategize about when to pay other bills to keep your cash flowing smoothly.
While all loan arrangements are different, your forecast can ensure that you manage the cost, along with the many other expenses vying for your cash.
To find out more about how cash flow forecasting can help you and your business, sign up for a free trial of Float today!
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