When I tell people that I’m self-employed and I work from home, I know what they’re thinking. “Work from home? Yeah, right. She probably spends her day scanning Facebook, taking naps and doing laundry.” That is so ridiculous. I don’t do laundry. Kidding — but it is frustrating when people don’t take you seriously just because you’re self-employed. If anything, those of us who work for ourselves are even more disciplined about setting hours, staying focused, and accomplishing our goals. After all, if we slack off and don’t complete our work for the day, we’re the ones who pay the price: not getting paid.
I work hard to meet customer deadlines, and perform work reliably — but even if I do my job perfectly, I can’t always predict when I will be paid. Many of my customers submit their jobs with P.O.s, and pay their invoices on Net 30 or Net 60 payment terms. That means that, even though I complete a job in April, I may not get paid until May or June. Add to that the fact that I don’t always know in advance what jobs are going to be coming in makes planning for the future a bit of a challenge. If you own your own business, or get paid on a contract basis, you feel my pain: while you’re waiting to get paid, your bills keep coming in. And, if you want to stay in business, you need to plan ahead.
Fortunately, I’ve discovered two powerful business tools that not only help me plan for upcoming expenses like taxes, salaries, and insurance — they can even help me get paid faster: cash flow forecasting and invoice factoring. In this article, we’ll discuss what these tools are, why they are important, and how they can help you better manage business income and expenses.
What is Cash Flow Forecasting, and why is it important?
As any business owner knows, the best-paying client isn’t always the fastest-paying client. However, waiting too long for payment can cause cash flow problems that make it difficult to pay debts, including payroll. Add unexpected expenses to the equation, and your company can quickly become insolvent.
Cash flow forecasting is method of predicting your company’s future financial position based on anticipated accounts receivable and expenses. You can use cash flow forecasting to determine your financial position at any given time — and to effectively prepare for upcoming costs.
Accurate cash flow forecasting can ensure that your business is prepared to pay its expected expenses, as well as those that may be less predictable. Some expenses — such as utility bills, insurance, and payroll, are generally the same each month. Other costs, such as unexpected repairs or a lawsuit, may take you by surprise. While cash flow forecasting can’t prepare you for every financial scenario, it can help you be better prepared for potential shortfalls.