Cash flow may be a challenge during normal times but COVID-19 is putting at risk the survival of each business. Projecting the results of reduced income, even if temporary, will guide changes in spending priorities, billing, and business model. I advise my small business clients to adopt a proactive approach to managing their small business with the help of a CPA who can assist with financial forecasting.
A financial forecast is derived by trying to estimate two things. These are the income that the business is expected to receive and the expenses that it is expected to have to pay. A cash flow analysis, or forecast, performed on a regular (weekly or monthly) basis will demonstrate if the income generated by sales produces sufficient cash to pay for obligations. This information about your cash balance clearly reveals a positive cash flow (net gain) or a negative cash flow (net loss). Regular cash flow projections compare previous projections with actual figures. Over time, principal changes will become apparent.
When a financial forecast is developed, it shows an estimate for the future economic outcomes of your small business. Internal accounting methods are analyzed, along with sales data and upcoming business activities, to determine the trajectory of income that you can expect in the near future.
This process considers the goals of your company and compares them with the daily priorities of management and employees. By understanding these forecasts, you can determine whether there is internal consistency in your business, helping you to reach higher levels of success in the future.
Many software accounting programs have features that simplify cash flow analysis. A professional accountant can create a cash flow analysis tool that is unique to your business. When talking with accounting firms about the services available, it is important to ask them about the ongoing support that is provided and whether forecasting is included. By using tools such as cash flow management and forecasting, you can estimate product demand to make sure that you can fulfill all customer orders in the future.
Additionally, financial management and forecasting helps to improve the profitability of your company and keep you looking forward to the future. You can stay competitive in the market, and learn from past financial mistakes that occurred.
Let me know when you would like to talk. As planners, we are here to assist you in navigating simple solutions.
Stay safe, stay well, and stay tuned,
Charles and the Myrick CPA Team
Charles P Myrick CPA, Washington DC tax preparation firm, specializes in accounting and bookkeeping services for small business and entrepreneurs. We invite you to learn more about the small business accounting services that are available: (202) 789-8898.