As we head into the new year, many of our members are looking forward to continued and heightened success in 2021. Part of running a successful service station is proper financial planning, including the creation of a good cash flow forecast for your petrol station as 2021 begins.
Creating a cash flow forecast that is comprehensive and well thought out will help you identify and solve cash flow issues quickly, and provide you the signals needed to determine when adjustments to costs and spending may be required. Here’s what to consider when creating your 2021 cash flow forecast.
Why does my petrol station need a cash flow forecast?
In addition to helping business owners be proactive about their spending, cash flow forecasts help our members know when to cut costs, and when they can afford to invest a little more into their petrol station. Having a solid concept of your future cash flow forecast for the year allows service station owners to plan ahead and mitigate their financial risks, leading to healthier cash flows and better profit margins overall. The urge to invest more money into your business can be tempting. Having a great cash flow forecast allows you better judgement as to when following that urge is a smart idea for your business.
What goes into creating a cash flow forecast?
A good cash flow forecast includes several key elements, and take into account:
- Anticipated Cash Inflows and Expenditures
- Predictions for an entire business cycle (at least 13 weeks)
- Variables such as industry seasonality and employment variance
- Sales growth and industry pricing (increases and decreases)
The best cash flow forecasts will thoroughly account for both common expenses such as employee salaries and petrol station supplies, but also take into account variable assumptions surrounding seasonal sales trend and prices in the industry as a whole. Owners need to have a reliable idea of their cash inflow and how it may grow or fall over the next business cycle.
Once you believe you have accurately forecasted your collective inputs and outputs in cash for the next business cycle, your next step as a business owner is to use the information you have gathered to your benefit. In order to arrive at your forecasted cash flow final number, you must stick to expenditures as you have predicted them in your model as closely as possible.
Of course, it’s not always possible to gather the complete spending picture for your petrol station, especially if you are attempting to forecast for further than one business cycle. However, gathering the data can help you identify areas where spending may need to be cut, as well as where you may safely be able to invest more cash resources.
Cash flow forecasts may not be flawless models, but businesses who have a firm grasp on their spending and income for the year ahead are giving themselves a big leg up in planning their financial year as a whole.
How To Create Your Cash Flow Forecast
One of the largest reasons so many businesses fail to implement or create regular cash flow forecasts is lack of know-how and seeming inaccessibility to programs that make the process easier. While it is certainly feasible to create a good forecast in a program such as Excel, you may find yourself desiring professional insight.
Finance professionals can help you plan your petrol station’s forecast with higher accuracy and ease than you may be able to achieve with your own efforts. It’s true that life is unpredictable, so why not plan for what you can safely anticipate? Though a DIY forecast may be cheaper up front, any money directed towards securing clear cash flow estimates for your year ahead is money well spent.