A cash flow forecaster or planner can go a long way in helping you learn how to manage working capital. But cash flow working capital is slightly different. When speaking of working capital, this is a comparison of assets and liabilities.
Working capital allows a business to know the amount of capital they have to cover short-term expenses.
If you want to manage cash flow and working capital, using a tool like QuickBooks cash flow planner can help. Cash flow forecaster provide invaluable insight into a business’s operations so that you can envision the amount of capital you’ll have:
- Tomorrow
- Next week
- Next month
- Next year
- Etc.
The following tips can help you fully manage your operating cash flow working capital.
1. Start out easy
New business owners or anyone just starting to learn how to manage their capital will want to start out easy. If you go into too much detail with your plan, you may create more confusion than anything else.
You’ll want to begin slow, such as using your:
- Credit card statements
- Bank statements
Using this approach, you can look at the inflows and outflows of the business using your bank statements. Overviewing your credit statement will help you understand how much debt you’re accumulating each month.
Now, you can begin to use this data to begin estimating your working capital.
2. Only provide the necessary level of detail
Unless you’re an accountant, you don’t need to have every last detail listed. For example, you don’t need to have multiple expenses and income categories listed because they’ll only cause you confusion in the long term.
Instead, you need to know one thing: how much capital do you have to fund operations this month?
Accountants will break every expense and debt into categories, but make it easy for yourself and just:
- Create one large income tally
- Create one large debt tally
You really only need to see the difference between income minus debt to understand if you have the working capital to fund operations or not.
3. Select a period of time that works for you
You can choose a timeframe that is three or five years when creating your plan, but this type of plan is complex and requires a lot of additional data to have any level of accuracy. Instead, you should focus on a period that is much shorter, such as a month or a quarter.
Over time as your business collects more sales data and can begin recognizing patterns in your working capital, it will have a much easier time forecasting it.
However, when operations are new, the general rule of thumb is:
- Shorter forecasts are more accurate
- Longer forecasts begin becoming more inaccurate
Unfortunately, you cannot plan for everything when trying to forecast your working capital because there are always going to be variables that are outside of your control.
4. Getting started is simple
Cash flow forecaster and planners help you get a grasp on your business’s working capital. However, if you plan on running these calculations by yourself, you’ll want to start slowly. The tips above can help you start understanding your business’s working capital. It’s best to start out as simple as possible.
Over time, you can then increase each report’s complexity if you wish.
While you can do all of the forecasts and manage working capital on your own, you may find it more beneficial to use software and tools. These solutions relieve the burden of planning on you and allow for a greater level of accuracy.
In conclusion
Working capital is crucial to the financial stability of your business. If you don’t have working capital, you cannot:
- Invest in new products
- Meet customer demand
- Expand operations
- Etc.
Businesses will always have slow and busy seasons: it’s the nature of business. However, working capital will allow you to have a cushion for these trying times. Additionally, if unique opportunities arise, knowing that you’ll have the working capital to leverage these opportunities will provide you with peace of mind.
Running forecasts and managing cash flow is a time-consuming process, but you can use software to try and alleviate the burden. Software will provide fast, accurate forecasts and allow you to spend more time on growing your business and less time on accounting-related tasks.
Also read: Amazing Personal Finance Guide For Startup Owners
