Cash Flow Management - The Rayne Firm

Cash Flow Forecasting – What it is and Why it’s So Important

Jenn — Wed, 24 Jan 2024 10:00:00 +0000

Cash flow forecasting is the process of estimating the amount of cash that will be coming in and going out of a business over a specific period, such as a month, quarter, year, or even multiple years. Cash flow forecasting involves analyzing past cash flow data, considering future income and expenses, and making projections based on various assumptions.

In addition to helping businesses plan and make decisions, such as determining whether to invest in new equipment, hire additional staff, or expand operations, Cash Flow forecasting can identify potential cash flow issues, such as gaps between cash inflows and outflows, and take steps to mitigate them, such as negotiating payment terms with suppliers or securing financing.

Cash flow forecasting can be done manually, using spreadsheets or other financial software, or with the help of specialized forecasting tools. The process involves reviewing historical cash flow data, projecting future cash inflows and outflows based on sales forecasts, project schedules, and other factors, and then analyzing the results to identify potential risks and opportunities.

It is important to note that cash flow forecasting is not an exact science, and forecasts may not always be accurate. Factors such as unexpected expenses, changes in market conditions, and economic fluctuations can all impact actual cash flow. However, by regularly reviewing and updating cash flow forecasts, businesses can stay on top of their cash flow situation and make informed decisions to manage it effectively.

Construction and trades companies should maintain cash flow forecasts for the coming month, quarter, year and three years to predict cash flow opportunities and pinch points, allowing the opportunity to take proactive measures to manage their cash flow effectively.

Here are 3 Major benefits of Cash Flow Forecasting

Predicting cash flow pinch points: By forecasting their cash flow, construction companies can identify when they may experience cash flow issues, such as when they must pay suppliers or employees before receiving client payments. This information can help them plan and take action, such as negotiating payment terms with suppliers or clients or securing short-term financing to cover the gap.

Managing working capital: Cash flow forecasts help construction companies manage their working capital by providing insights into the timing of their receipts and payments. This information can help them make informed decisions about inventory levels, capital expenditures, and other investments.

Identifying opportunities: Cash flow forecasts can also help construction companies identify opportunities to invest in growth or expansion. For example, suppose a cash flow forecast shows the company will have excess cash in the coming years. In that case, it may consider investing in new equipment or technology to increase productivity and profitability.

What can happen if cash flow isn’t managed.

Cash flow shortages to cover day-to-day expenses, such as payroll, rent, utilities, and suppliers.

Unable to invest in new equipment, staff, or other resources necessary for growth.

Missed opportunities to take advantage of favourable market conditions, negotiate better payment terms with suppliers, or pursue new business opportunities.

Strained relationships with suppliers and clients when bills aren’t paid on time plus late fees.

Increased debt if there is a need to borrow just to cover expenses, leading to increased debt and interest payments.

Poor credit rating due to late payments, missed payments, and increased debt can all negatively impact a business’s credit rating, making it harder to secure financing and attract new customers.

KEY TAKE AWAY

Maintaining cash flow forecasts can help construction and trades companies manage their cash flow effectively, plan for potential cash flow issues, and identify opportunities for growth and expansion.

Pro tip: Banks almost always want to see these analyses if you need to apply for a loan.

At The Rayne Firm, Bookkeeping and Consulting, we work with trades and construction companies to prepare professional, scenario-driven cash flow forecasting, creating transparency for business owners and helping them with any needed secure bank financing.

Ready to Master Your Cash Flow?

Ready to fast-track your journey to financial success in your business? Look no further than Jenn Newbery. Bid farewell to financial roadblocks and welcome a more prosperous and enjoyable ride. Jenn is your reliable guide, just a click away. Embark on your financial adventure today!

The post Cash Flow Forecasting – What it is and Why it’s So Important first appeared on The Rayne Firm.

Five tips to improve your cash flow.

Jenn — Mon, 27 Nov 2023 10:00:00 +0000

“Making more money will not solve your problems if cash flow management is your problem.”

– Robert Kiyosaki.

Whether your business is importing, distributing, manufacturing or in the services sector, cash flow is the lifeblood of your company. It’s what keeps the lights on. However, it’s tricky to keep the incoming money line up with the outgoing money.

Here are five practical tips to help.

1. Invoice quickly

Prepare and send invoices with your goods at delivery or when the work is done. Don’t wait for your month end. Invoice for part of a project upfront, particularly if you need to invest in products or people to help you do the work.

Pro Tips:

make invoices easy to read
ensure your terms are clearly stated
list the due date stated in a few places (maybe in bold)
provide clear instructions on payment types accepted
include late payment fees information if applicable

2. Make it easy for customers to pay

Make use of a mobile payment method so you can get paid on the spot. Consider an app or device that turns your smartphone or tablet into a mobile POS terminal.

If mobile payment isn’t for your business, simplify the payment process by making online payments possible. Say goodbye to chasing customers for payment.

Pro Tips:

test your digital payment method to ensure it works properly
implement the highest security
never store credit card information
provide clear instructions for customers
choose your target audience’s preferred payment method

3. Use technology to manage cash flow

Use a cloud-based accounting system to manage your accounting and tax workload. Many offer job costing and quoting, payroll, and inventory management, removing additional administration tasks.

You can eliminate many costs associated with paper, printing, and postage by going electronic, and the CRA also accepts many submissions electronically.

Pro Tips:

ensure remote access and multiple users are options
research plans available
ask for recommendations – The Rayne Firm uses and recommends QuickBook Online
confirm CRA compatibility
choose systems that integrate with your other systems or apps (i.e. QBO work with Square and Hubdoc)

4. Evaluate Your Expenses

Evaluating your expenses is the fastest way to determine if you are spending too much and to decrease your cash outflows.

Pro Tips:

consider your current service terms with your suppliers
shopping around for new utilities (phone, gas and electricity)
determine if you have any unnecessary expenses
cancel any recurring, unused subscriptions
keep your receipts in order (i.e. use an app like Hubdoc)

5. Predict the future

Ok, so not predicting the future, but the next best thing–cash flow forecasting. Analyze your expected income and costs so you can plan for the coming weeks and months, meet your tax obligations, plan purchases, and estimate your working capital needs.

Pro Tips:

consider whether you are forecasting for the short, medium, or long term
regularly update cash flow forecasts to reflect changing circumstances
analyze historical data to improve future cash flow
implement cash flow forecasting tools that automatically fetch cash flow data
hire a professional

KEY TAKEAWAY

Improving cash flow isn’t just about making more money, it’s also about spending less and being organized. Both incoming and outgoing cash affects overall cash flow. When you aren’t making enough, cash flow becomes tight. If you continue to spend, even when income is down, expenses become too much. Staying ahead of your cash flow is crucial.

Need in-person near to you or virtual bookkeeping services Canada-wide?

Whether in British Columbia, Alberta, Ontario, or the Maritime provinces, we’re here to help!

Schedule a Free Consultation here.

The post Five tips to improve your cash flow. first appeared on The Rayne Firm.

Year End Prep Checklist

Jenn Newbery — Tue, 10 Oct 2023 14:26:22 +0000

The end of the year is a busy time. Prepping for the holidays, making time for family, and planning our workload in hopes of a few days off over the holidays.

As a small business owner, your list is even longer with financial statements, taxes, employee incentives, budgeting, and prepping for 2024.

To help you with this process, we’ve created an accounting checklist highlighting some key areas to focus on as you wrap up the year.

Year End Accounting Checklist

Review and Organize Receipts

Failure to stay on top of your receipts will lead to errors in your accounting records, stress you out at tax time, and may lead to overpaying taxes if you miss expenses.

Tracking your receipts is easiest if you have a system in place to record and file them as you go. If you don’t have a system in place, use this time to set one up. Some tips:

Organize by type of expense
Organize your receipts using folders, tags, or even envelopes
Record receipts at the time purchases are made
Back up receipts digitally by scanning them or taking pictures

Pro Tip: Use a service like Hubdoc to easily capture and manage expenses and feed them directly into your accounting system. Read more about how to set thus up in our post, Streamline Your Business.

Run Top 3 Financial Statements: Income Statement, Balance Sheet, & Cash Flow Statement

The “big three” financial statements are the best way to see, at a glance, where your business stands financially.

If your profits are lower than expected, you should make some changes as you head into the new year. If your profits are higher than expected, it might be a good time to make larger purchases for which you can record future depreciation.

Speak with a professional before making big purchases to ensure you have the cash on hand, and to understand depreciation rules.

Analyze cash flow statements

It’s a good idea to review your cash flow statements quarterly. Here are some things to look at for expenses:

Review by category, for example, advertising
Look for areas where you spent a lot of money
Was it worth it?
Did my advertising work? Did I go out to eat too much?.. Or have too many coffees?.. mmm coffee

Pro Tip: It’s easy to lose track of unused subscriptions, especially if you’ve set them up via auto-pay. Small recurring costs can add up quickly. Auditing these regularly will cut costs and keep your organization lean.

Reconcile accounts receivable

Run a report of unpaid invoices and make a plan to collect. Reconciling your AR will boost your cash flow and allow you to start the new year without outstanding invoices (and with cash in the bank).

Double-check payroll and benefits

Identify any issues or corrections to your payroll before the year’s end. Ensure easily forgotten benefits, such as educational reimbursement, health and life insurance, and company car, are accounted for.

Verify vendor & customer information

A lot can change in a year. December is a good time to verify your customers’ and vendors’ information. Check that phone numbers, email addresses, and contact names are accurate and up-to-date.

If time permits, evaluate your vendor relationship and look for opportunities to negotiate better deals in 2023.

Take some time to do this now so you can be present and relaxed over the holidays, and give your business a running start in January.

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