Cash is critical for a business. Every aspect of your business needs cash to operate smoothly. Big or small – every business needs to perform a cash flow forecast. It helps in understanding the financial standing of the business, anticipating future problems, and ensuring that there are enough funds for the business to survive.
What do you do if your cash flow analysis tells you that you may face a shortage of funds in the future or that you won’t have enough to meet the expansion plan that you had in mind? Good news – unsecured business lending was introduced for situations like this.
Unsecured business loans do not demand any collateral. Under certain conditions, they are or can be your best option, thus, improving your cash flow forecasting.
How to Create a Cash Flow Forecast
Every business, irrespective of its size, needs to construct a cash flow forecast. It helps you understand the liquidity of the business and manage your working capital. There are two types of cash flows – inflows and outflows.
Inflows are simple. Everything that you make from sales goes under cash inflows. If you are taking unsecured business finance, then this amount would also be entered under the cash inflows.
Outflows have more components. Let us start with the obvious ones. The salary for employees, rent for equipment or office space, insurance, payment for services that you have outsourced are recurring outflows. Next, consider all the taxes you would pay during the period. You also need to include the costs associated with a sale, which includes shipping, logistics and manufacturing charges. Repayments towards fast unsecured loans also come under this section.
To construct a cash flow forecast, you start by deciding on the period for which the forecast should be created. This can be six or 12 months. Now take the opening cash balance, add the inflows and subtract the outflows. You are left with the final cash balance at the end of the period.
The Impact of Unsecured Business Loans on Cash Flow Forecasting
As mentioned before, unsecured loans for small businesses are collateral-free loans given to businesses to help them meet unexpected demands of cash.
A new opportunity may have presented itself. You may need to buy some new equipment or hire additional staff to make use of this opportunity. Should you let a chance for gaining new customers and expanding your business go due to a shortage of funds? Alternatively, your business may be suffering from a shortage of funds due to unforeseen emergencies that have exhausted your funds.
Both of these are common business scenarios. Most of these are temporary situations, and a fresh influx of immediate cash may promise high returns in the future.
If you have a good credit score, and if your cash flow forecast is in order, you will have no trouble in gaining an unsecured loan.
But how does such a loan affect your cash flow forecast? For starters, since the payments amounts and date are fixed beforehand, the expenses are planned and becomes easier to account for cash outflows in the forecasting. If you are planning to take unsecured business finance, then you must add it to your cash inflows.
Cash flow forecasting is imperative for all businesses. However, not everyone does it on time. Whoever is granting you your unsecured loan will consider the punctuality and quality of your cash flow forecasts carefully before handing you a loan. It is their way of assessing if you are capable of repaying the loan. The onus is on you to maintain proper records and provide an accurate forecast. Not only does this help you gain a loan, but it also ensures that you create and maintain accurate cash flow forecasting. The forecast results can also help you when making other business decisions. Once you understand the advantages of having a cash flow forecast, you will always make sure that it is prepared on time. So actually, requirement for an unsecured loan turns into a valuable business strategy tool.
Never undertaken a cash flow forecasting? It is better to be late than never. So start creating your forecasts and use it to get an influx of cash in the form of unsecured loans in Australia.
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