What are the benefits of forecasting?

There are many benefits to forecasting for your business.

First and foremost is that you’re more likely to maximise your profits if you are able to accurately project your revenues and expenses.

Additionally, accurate forecasting helps you to identify potential opportunities and manage your cashflow. And when you have this information you are able to make educated decisions at the right time for your business.

Here are some examples of questions that an accurate forecast of your cash flow could help you answer:

• Can i start creating a new product/service?
• Can I open a new office/location or start selling in a different area/country?
• Can I afford another member of staff or outsourced assets?
• Can I take more money out of my business?
• Am I at risk of running out of cash?

How do you create a forecast?

The short answer is you don’t have to do it manually anymore.

Forecasting Apps, such as Futrli, mean that the complex, manual time-consuming forecasting is a thing of the past. Forecasting is now possible with the click of a button.

An added benefit of using Futrli to forecast, is that you can test out your decisions before you make them.

Using automated predictions means you have a second brain on your business 24/7.

Futrli

• Creates separate predictions for invoices, cash transactions and journal entries
• Works out how many days it takes for invoices to be paid for every account
• Considers ‘what we thought the month will look like’ compared to current month actuals and adjusts accordingly
• Reads account names and looks for account-specific patterns
• Creates staff payroll predictions just like your payroll software does

And the information is presented in chart format, making it easy to understand.

How far into the future should I forecast?

Forecasts are most beneficial for looking at the next year. They should be used in the short term for immediate planning and decision making and medium to long term to assess and extrapolate current trends.

It’s important to remember that the further you look into the future, the less accurate your cash flow forecast will be as there are too many unknowns yet to pass.

Talk to us about forecasting and how Futrli can benefit your business. 

Are you considering cutting costs or increasing your prices?

With more than 85% of SMEs expecting a lower profit in the next nine months, the more prepared you can be for the unexpected, the better.

Managing expenses is a good idea at any stage in your business and you may need to consider increasing your prices.

Smart ways to get your costs under control

Cashflow has been a big issue for thousands of businesses this year, and when the money’s not rolling in, it can help to rethink your costs. To do it effectively involves more than just keeping an eye on outgoings. It’s about looking at all the moving parts of your business to see if your systems (or lack of) are costing you unnecessarily.

Here’s how:

Muck in

Do a cost control audit to work out where your big cost centres are and look at your systems for managing them.

Be aware

Don’t just slash your expenses. Track costs and look out for opportunities to trim fat or take a different approach.

Unite your team

Bring everyone together to monitor and analyse inputs and expenses. Reviewing and developing your systems? Get your team’s feedback.

Look to your peers

How do your costs compare to others? If a business of a similar size and production system to you is performing well, but spending less, explore what they’re doing differently.

Seek advice

Got a good idea of where the issues are, or feeling totally confused? Talk to your advisors about your next steps

How can I put my prices up without losing customers?

If you need to change your pricing to make ends meet, be honest and up-front with your customers at all communication points.

Understanding your cashflow statement

Understanding your cashflow statement means you know how your business has generated and used cash (and cash equivalents) within a specific time period. And this gives you an overall picture of your business performance. 

It is another important financial statement to understand in conjunction with the Profit and Loss statement and the Balance sheet. These three reports provide a good understanding of the financial position of your business.

How does it work?

The cashflow statement integrates the information provided by the profit and loss statement and the balance sheet into a current cash position.

Your cashflow statement is reported on a cash basis, while your other financial statements are usually reported on an accrual basis. Accrual income (from the profit and loss statement) is converted to cash by calculating the changes in the balances of asset and liability accounts.

Report categories

Your statement of cashflows is organised into sections that report on different types of business activity.

1. Operating activities - all business income, expenses, assets and liabilities (except for those assets and liabilities reported in investing and financing activities).
2. Investing activities - the purchase and sale of long-term investments, property, plant and equipment as well as security deposits paid to suppliers or received from customers and dividends received.
3. Financing activities - the changes in balances of equity accounts, for example, issuing and repurchase of stocks and bonds and payment of company dividends if applicable. Loans are also included in financing activities.

Formal financial report packages usually include notes to the financial statements. The notes contain supplemental information that explain significant items or activities that did not involve cash transactions. 

Why is it useful?

Your cashflow statement gives you a valuable measure of cashflow in and out of the business over a given period. It shows the ability of your business to pay bills and fund operating activities. This gives you a picture of overall performance.

It also shows the relationships between assets, liabilities, equity and cash accounts. Your cashflow statement shows changes and movements over time. Whereas the balance sheet and profit and loss reports show account values at a single point in time.

Your cashflow statement gives you vital information on your business.

• How strong is your cash position?
• What is the long-term outlook for your business?
• What activities generate the most cashflow?
• What is the relationship between your net income and your operating activities? 

Nine ways to improve your business performance

Supercharge your business with some simple tips.

Here are nine ways to make sure that you continue to drive through each business quarter with purpose, vision and the courage to super-charge your business.

1. Get a plan

You don't go on a journey without a map or any idea of where you're headed - so why fly blind with your business? Have a planning process, create a plan and execute. 

2. Eliminate distractions

Time is the scarcest resource and biggest killer for most businesses. When we get busy we can also get distracted and focus too much time and energy on the wrong things. Be brave - slash standard meeting times, reduce unnecessary admin and delegate roles and responsibilities.

3. Use technology

Technology can help you decrease admin, improve communications, improve reporting and accountability. Whether it's for team communication or cloud accounting, slash paper and automate where possible. Talk to us about the different Apps that can help you make your business more efficient. 

4. Keep on top of the numbers

Do you have enough information to monitor business cashflow and see emerging trends? We can help you identify the metrics to track on a regular basis, in order to run your business efficiently.

5. Say goodbye to bad customers

If possible in your business, get rid of ten time-wasters, bad payers, or customers who cause you pain. You will feel instant relief and spend your time better elsewhere.

6. Surround yourself with positivity

Make sure the people in your business understand and share your vision. Bring them onboard, listen to them and give them ownership. Don't let people who don't get it, or don't care, be a millstone around your neck. If they're not right, do them a favour and free up their futures.

7. Be different

Break the mould and position yourself to attract ambitious, growing and engaged clients, and employees.

8. Deploy marketing

Create a simple marketing plan to increase reach and penetration. Set aside a budget to treat this seriously. Start by making sure you really understand your customers. Existing customers are prospects too, keeping them happy is your first step. The more you know about them, the easier it will be to attract more of the same.

9. Take a break

Don't underestimate the time you have away from your business. It can allow you to come back refreshed with new enthusiasm and inspiration for the way forward.

Six reasons to look at your financial reports

Making time to look over your financial reports each month is an important task for any business owner.

If you are not taking the time to do this, either because you’re too busy, or perhaps you don’t really understand what you’re looking at and it doesn’t make sense to you, then here are six reasons to look at your financial reports.

But before we get our six reasons, let’s talk very quickly about which reports to look at.

At a bare minimum, and depending on the complexity of your business, you should be looking at the following:

The Profit and Loss report (P&L)

As the name suggests, your P&L tells you how your business is performing over a period of time, such as a month or a financial year. In broad terms it shows the revenue that your business has generated, less the expenses for that same period. In other words, it shows how profitable your business is.

The Balance Sheet

The Balance Sheet shows the value of the business’s Assets, Liabilities and Equity.

• Assets include things like money in bank accounts, Plant and Equipment, Accounts Receivable balances
• Liabilities include things like Bank loans and credit cards, Accounts Payable, and Hire Purchase balances
• Equity is the difference between your Assets and your Liabilities and includes Retained Earnings and Owner Funds Introduced

Accounts Receivable Ageing Report (Aged Receivables)

This shows how much money is still owed to the business as at a certain date in time, and is usually segmented as to how overdue they are, or sometimes by how far past the invoice date they are. Generally, you will have Current, 30, 60 and 90 days columns.

Accounts Payable Ageing Report (Aged Payables)

This report shows who the business owes money to as at a certain date in time and, like the Accounts Receivable Ageing report, is usually segmented by overdue period.

So, why bother? (six reasons)

1. Understand your business better

By looking at your Profit and Loss report monthly you will get a good picture of how your business is performing month by month and it will give you a better understanding of what makes up your profit. It can be helpful to compare periods, or to look at a month by month P&L, so you can clearly see on one page the revenue and expenses month by month. This will help to identify trends in your data and many also help to highlight anomalies in coding/categorising.

2. Accurate information for lending purposes

If you are applying for a loan or an overdraft, the bank or financial institution will look closely at both your Profit and Loss report and the Balance Sheet as a lot can be learned about a business by looking at these reports together. If you are unsure what some of your balances are in your accounts, get in touch and we can explain them further.

3. Get paid quicker and reduce bad debts 

By looking at your Accounts Receivable Aged Summary each month you can follow up with overdue accounts promptly which often results in getting paid quicker. The longer an overdue amount is left unpaid the higher the risk of it not being paid at all, so it is important to keep on top of this.

4. Better relationships with your suppliers

Assuming you are entering your supplier bills into your accounting software (recommended for most businesses to get an accurate profitability figure) your Aged Payables report will alert you to any unpaid or overdue amounts. Supplier relationships are an important aspect of your business and paying on time is crucial to maintaining those relationships.

5. Better cashflow

Having an accurate understanding of how much money the business is owed, and how much money the business owes, can help with cashflow planning to ensure that there is enough money when needed. Additionally, understanding the trends of your business, its profitability drivers, its expenses, etc., can help to plan sales and marketing campaigns so that the revenue keeps coming in.

6. Better decision making

Your financial reports tell the story of your business and it’s important that you understand the story that they are telling you. The better you understand what’s going on in your business the stronger position you will be in to make better business decisions that affect the profitability of your business and its financial viability.

Whats next?

If you would like to know which reports are relevant to your business, and you want to better understand what’s going on in your business , then book a time with us to make a time to go through them with you.

Your business success is important to us and we are here to help you.

The Fundamentals of a Business Budget

A business budget is one of the essential tools in managing your business finances and actively building your business.

A budget shows what you plan to do with your cash over the next year.

For a complete picture of your business health, you need to review the profit and loss statement, the balance sheet, the cash flow forecast and the budget. Taken together, these reports allow you to make informed business decisions and monitor performance.

Why have a budget?

• Forecast sales and expenses according to monthly or quarterly variations.
• Evaluate performance over time, including changes or patterns.
• Get really familiar with where your money goes and where it comes from.
• Clarify targets and goals and use the budget to help you focus and achieve those goals.
• Comparing actual figures to budgeted figures allows you to see potential problems early and plan for unexpected costs.
• A budget will help you to see the big picture and stay motivated over the long term.

Where to start

A basic budget takes known income and expenses, then makes certain assumptions about the timing of income and planned expenditure. The basic budget is based on cash in and out of the business.

Over time, as you start to see the benefits of using a budget, your budget should evolve into a more sophisticated version that includes non-cash elements such as provisions and depreciation.

Most businesses will start with one budget but soon move to having three budgets.

1. Business as usual -  the next year’s budget is based on current year income and expenses, with perhaps a small adjustment for consumer price index increases.
2. Worst case - budget is based on a pessimistic view of next year’s performance.
3.  Best case -  budget is based on an optimistic view of performance over the next year.

A budget is usually for a financial year, but you can also set up budgets for two to five years.

Once you have one budget (or more) set up, you can then run your current financial reports against the budget to see how you are tracking. This allows you to make rational business decisions in real time to adjust accordingly.

Your can run your financial reports monthly and adjust your budget as needed.

Xero's short-term cashflow feature for businesses

Business cashflow is simply money coming in and money going out of the business. Your outgoings will include things like rent, payroll, taxes and supplies. Your income will be revenue from sales but might also include investment funds or the sale of assets.

For most businesses, income and expenditure don’t always happen at the same time so focussing on strong cashflow management will help you prepare for the shortfalls and also manage surplus income.

Cashflow reports allow you to look back at cashflow in your business. This can uncover cashflow patterns over time and show you how much money you need to run your business each month.

Cashflow forecasts look forward by combining payment dates and due dates for invoices, to give you an idea of what your cashflow will be like going forward.

Managing healthy cashflow

Xero’s short-term cash flow feature gives you an up-to-date dashboard view of your organisation's cashflow. You can choose multiple bank accounts and see the projected cashflow over 7-30 days. The more information you include, the more accurate your forecast will be.

Healthy cashflow management gives you better control, so you are more prepared for growth or for the unexpected. Read the article at Xero Central to learn more about this feature.

We can help. Talk to us about improving your business cashflow.