A cash flow forecast is an estimate of the future inflows and outflows (receipts and payments) of cash for a business. It is typically used to assess whether a business has sufficient cash to meet its short-term obligations and to anticipate when it will need to raise additional funds.

A cash flow forecast can be prepared using either accounting or transaction data. Accounting data reflect the historical financial performance of a business, while transaction data capture actual receipts and payments as they occur.

How to Create a Cash Flow Forecast.

Creating a cash flow forecast is not as difficult as it may sound. The first step is gathering all your financial information, including your income, expenses, and other sources or uses of cash. Once you have this information, you can begin creating your forecast.

You can use several methods to create your cash flow forecast. The most important thing is to choose a method that works best for you and your business. Some common methods include using Excel or another spreadsheet program, creating a budget, or using software specifically designed for cash flow forecasting.

Once you have chosen a method, you must input your financial data into the format. This data will be used to generate your forecasts. After inputting your data, you can generate various reports showing how much cash you expect to come in and go out over time.

These reports can be used to help you make decisions about how to manage your cash flow best. For example, if you see that there is likely to be a shortfall in one month, you may decide to cut back on expenses or bring in additional income during that month; alternatively, if you see that there will be a surplus.

What to do With Your Cash Flow Forecast.

Once you have your cash flow forecast, you can use it to make informed decisions about your business. Here are some things you can do with your cash flow forecast:

Use it to create a budget: Your cash flow forecast can help create a budget for your business. By knowing how much money you expect to come in and go out, you can better allocate your resources.

Make financial projections: A cash flow forecast can also be used to make financial projections for your business. This can help you plan for future expenses and income.

Get a loan: If you need a loan for your business, a cash flow forecast can help demonstrate your ability to repay the loan. This can increase your chances of getting approved for financing.

Invest in growth: Use your cash flow forecast to identify opportunities for investing in growth. This could include expanding your product line or opening new locations.

Conclusion

A cash flow forecast is a crucial tool for any business, large or small. It can help you to anticipate and plan for shortfalls in your cash flow, as well as help you to make the most of any surplus funds.

Ontario Disability Support Program (ODSP)

Finance intends on raising the amount a person with a disability on the ODSP can earn, from $200 to $1,000 per month, without impacting their income support benefits. This measure would encourage people on ODSP who want to increase their work hours to do so and promote more participation in the workforce. For each dollar earned above $1,000, the person with a disability would keep 25 cents of income support.

For those who are unable to work, Finance increased ODSP rates by 5% and plans to adjust ODSP rates to inflation beginning in July 2023.

Increasing Financial Support for Seniors

The government plans to double the Guaranteed Annual Income System (GAINS) payment for all recipients for 12 months starting in January 2023.  This measure would increase the maximum payment to $166 per month for single seniors and to $332 per month for couples, a maximum increase of almost $1,000 per person in 2023. They are also looking to introduce measures to expand eligibility in the coming months. Currently, eligibility is determined automatically for individuals who receive Old Age Security and the Guaranteed Income Supplement.

Temporary gas tax and fuel tax cuts

The economic outlook confirms the government’s intention to extend the temporary gas tax and fuel tax cuts for an additional 12 months. The government previously cut the gas tax and fuel tax rates on July 1, 2022 by 5.3 cents per litre. The government is proposing to extend the cuts to the gas tax and fuel tax rates so that the rate of tax on gasoline and fuel (diesel) would remain at 9 cents per litre until December 31, 2023.

Non-Resident Speculation Tax Rate

Effective October 25, 2022, the government increased the non-resident speculation tax rate from 20% to 25%. This tax applies to the purchase of a home located anywhere in Ontario by foreign nationals, foreign corporations or taxable trustees. Rebates remain available for foreign nationals who become permanent residents of Canada within four years after the tax became payable, if eligibility criteria are met.  Rebate details are available on the Ontario NRST website.

Tax Credits

Ontario Seniors Care at Home Tax Credit

The Ontario Seniors Care at Home Tax Credit is a refundable personal income tax credit to help seniors with eligible medical expenses, including expenses that support aging at home. The credit provides 25% of claimable medical expenses up to $6,000, for a maximum credit of $1,500. This amount will be reduced by 5% of family net income over $35,000. Individuals’ resident in Ontario that are 70 years of age or older or that have a spouse/common law partner 70 years of age or older are eligible. A detailed list of eligible expenses is available on the Ontario Seniors Care at Home Tax Credit website.

Film, Television and Media

The government is expanding Ontario’s film and television tax credits to professional film and television productions distributed exclusively online. In the coming months, proposed regulatory amendments to implement this measure will be provided for public review and comment. Furthermore, the government is looking to modernize various cultural media tax credits to encourage film and television production, computer animation and special effects activities, interactive digital media product development and book publishing in Ontario.

Budget Measures

The economic outlook also confirmed the government’s intention to mirror various federal measures including immediate expensing for capital asset purchases and increasing the range to $10 million to $50 million for which the small business tax rate is phased out.

Interest and Penalties – Corporations

The CRA charges compound daily interest on all balances owing. Interest begins to accumulate as of the “balance-due day”. The balance-due day is generally two months after the fiscal year-end of the corporation¹.  For example, a corporation with a December 31st fiscal year end should ensure their corporate income taxes are paid by February 28th.  Even if the final tax liability has not been determined at that time, an estimated payment should be made based on available information.

Instalments – Corporations

New corporations are not required to make instalment payments during their first year of operation. Corporations are also not required to make instalment payments if their income taxes payable in the current or previous year is $3,000 or less. In most other situations, you will be required to make monthly or quarterly instalment payments throughout each tax year.

Corporations can choose from three options to calculate these payments:

1. Current year estimated tax payable
2. Previous year tax payable and
3. A combination of the previous year and second previous year tax payable.

Instalments are required based on the lowest amount calculated under these three options. Generally, most corporations will pay their instalments based on the previous year tax payable unless they anticipate a significant reduction in the current year estimated tax payable.

If you are required to pay tax by instalments but you do not make the payments, interest will be charged at the prescribed interest rate on all unpaid, insufficient or late instalment payments. You will also be assessed a penalty if total instalment interest charges exceed $1,000. The penalty is calculated as:

1. actual instalment interest charges for the year, less
2. the higher of
   1. $1,000 or
   2. 25% of the instalment interest that would be charged if you had not made any instalment payments for the year
3. divide the difference by two.

If instalments are overpaid throughout the year, the amount can be refunded to you when your income tax return is assessed, or it can be transferred to the instalment account of the next tax year.

Example

A Corp. has a December 31st year end and must make monthly instalments of $75,000 starting in January 2022 for an annual total of $900,000. Assuming A Corp. makes no instalments throughout the year, the CRA will assess instalment interest of approximately $40,000 plus an instalment penalty of approximately $15,000.

Furthermore, assuming A Corp. has a balance owing of $1 million for the 2022 tax year and the balance due is paid at the time the corporate tax return is filed on June 30, 2023. Since the balance due was not paid by February 28, 2023, arrears interest will be assessed beginning March 1, 2023 until the balance is paid off on June 30, 2023. This results in approximately $24,000 of arrears interest assuming a 7% rate.

Interest and Penalties – Individuals

Similar to corporations, the CRA charges compound daily interest on all balances owing by individuals. The payment deadline for individual income tax returns is April 30th each year so interest begins to accrue on the balance owing as of May 1st. The balance owing includes unpaid taxes, penalties, and previously accrued interest charges.

Late-filed returns may be subject to a penalty as well. Individual income tax returns are due by April 30th each year or June 15th if you are self-employed. All individuals, including those that are self-employed, must pay their balance owing by April 30th. If a return is filed after April 30th or June 15th, then you will be subject to a late-filing penalty calculated as 5% of the balance owing as of the payment deadline plus 1% for each full month that your return was filed after the filing deadline up to a maximum of 12 months (maximum penalty of 17% of the balance owing). This means that you will not be assessed a late-filing penalty if your return is filed on time, or if you pay your balance owing by April 30th even though your return was late-filed. Repeat offenders are subject to steeper penalties.

Instalments – Individuals

Individuals are required to make instalment payments if your net tax owing will be greater than $3,000 in the current year and in at least one of the previous two years (the threshold is $1,800 in Quebec).

Once it is determined that you are required to pay tax by instalments, you must make quarterly payments no later than March 15, June 15, September 15 and December 15. You can choose from three options to calculate these quarterly payments: the no-calculation option, the prior-year option and the current-year option. The no-calculation option is the default option used by CRA to generate instalment reminders, but the other two methods may be more beneficial to you.

1. Under the “no-calculation option,” your quarterly payments are calculated as 25% of the net tax owing per your most recent assessed tax return. This option is best if your income, deductions and credits are approximately the same each year.
2. Under the “prior-year option,” your quarterly payments are calculated as 25% of the net tax owing in the immediately preceding year. This option is best if your income, deductions and credits are approximately the same as the preceding year but have changed significantly from the second preceding year.
3. Under the “current-year option,” your quarterly payments are calculated as 25% your estimated net tax owing for the current year. This option is best if your income, deductions and credits have significantly changed from prior years.

Similar to corporations, individuals will be charged interest at the prescribed interest rate on all unpaid, insufficient or late instalment payments if you received an instalment reminder from Canada Revenue Agency and were required to pay based on the criteria discussed above. Interest will be calculated based on the option which results in the lowest amount. You will also be assessed a penalty if total interest charges exceed $1,000. The penalty is calculated in the same manner as discussed above for corporations.

Proper management of business finances can be a challenging task for small enterprises. You don’t want to spend money you won’t have, but that can be not easy when you aren’t sure where the money is going. Here are ten simple tips for keeping your store afloat and in the black.

1. Plan your spending by planning for cash flow.

Most entrepreneurs don’t think about where their money is going when buying supplies. You have to think ahead and keep things under control. Things might be more expensive initially, but you won’t be paying them as much when you need them later on.

2. Get organized.

Please keep track of all your receipts, and categorize them according to their purpose. You should also have a system for classifying your inventory. You might be tempted to throw everything into a packing box, but make sure you don’t spend money on boxes that aren’t worth it. Go through each item, and only purchase what you need to make money for the day or week.

3. Make sure you are competitive in your pricing structure.

This is an essential part of financial planning. Know what your competitors are charging and how you can be different. You don’t want to give away a good product for far too cheap. The profit margin will kill you. The same goes for advertising; you need to be willing to spend money to get the word out that you are an excellent business.

4. See what your competitor charges for the same service or product, and adjust accordingly.

It would be best if you were prepared to bring in more money, keeping prices competitive. If you can charge more than your competitors, you will make more profit in less time.

5. Keep track of sales and profits during the year.

The best way to keep the books is to keep them up-to-date regularly throughout the year, not just as they are needed at tax time. Make sure you chart your progress. You can also use spreadsheets to keep your system organized. These could save you a lot of time when you need to make certain adjustments and provide some help in getting your balance sheet up-to-date.

6. Track down old insurance or receivables claims.

Sometimes things get so out of hand that you will want to pay for some old business debts with the money saved from running the business. This is a bad idea. Investigate to see who owes you money, and talk with them about when they will pay up. Search for old insurance claims you have never taken action on and get them paid off.

7. Consider using a single bank account for your business.

You might be tempted to use your bank account and create a business account. This isn’t such a good idea. You might be tempted to spend money out of the business account, and you will never have an accurate idea of how much money you have made or lost. Creating a completely different checking account for the business will help keep things in control.

8. Keep track of your business expenses and earnings.

This will allow you to function better as a business owner because you will be aware of what is going on with your products and services and your costs. This information is crucial to making any decision when it comes to running a small business.

9. Get insurance for your business at a reasonable price.

Insurance can be negotiated, especially if you don’t have a history with the company yet. If you are starting up, it is vital to get at least some insurance to have coverage for small losses. You will be able to buy more in the future once you have a history with your insurance company. In the meantime, make sure you purchase a policy in case of theft or fire.

10. Reinvest in your business when you have money left over.

Don’t spend it all on parties and trips to Disneyland. You need to put some of that back into the store so it can continue to grow. People will be more likely to pay attention if you have a special event happening.

You don’t want to open your store and find out later that you have run out of money or something is about to break down. These business tips will help you keep running smoothly and allow your small businesses to stay in the black.

LET’S TAKE A LOOK!

1. Maintain your books up to date

If you own a business where cash flow is critical, it is essential to have a strong accounting system and maintain it as up-to-date as possible. The good news is that having a solid accounting system is not difficult. We provide a service that will give you updates about your cash flow status. We will take care of the entire procedure for you at a fair fare, lower than the average accounting company.

2. Send out invoices as soon as possible

Keep track of your receivables by sending out invoices on time and clear payment deadlines. Make sure to follow up on outstanding bills as soon as possible to assist keep the income flowing.

It is also important to ensure that the payment instructions on your invoices are easy to read. Include a visible payment due date as well as a detailed list of products and services so your client knows exactly what they are paying for it.

3. Expand payment options and provide discounts

By giving discounts for early payment, you can reward your best clients while also managing your cash flow. This allows you to show your gratitude for the positive relationships you’ve created with regular customers while also encouraging them to pay on time in the future.

4. Inventory management

It is essential for businesses to be able to satisfy consumer needs promptly but having too much inventory on hand comes with a cost. Aside from limiting cash flow, it also generates storage and maintenance expenses, as well as the risk of losing value when new models replace older ones. It is essential to evaluate your inventory on hand on a frequent basis in order to optimize it. We adopt software that will assist you in making the right decisions, and if your inventory is complicated, a scan and track system may be the best option to have your inventory updated in real-time.

5. Use supplier discounts to your benefit

Like you, even the suppliers are typically keen to collect their receivables as quickly as possible. For that purpose, many of them provide discounts for early payment. If you noticed that your business cash flow is poor, you should request your supplier to extend the due date of your invoices, this will give you room to breathe. There may be an additional administrative cost, but it may be worthwhile to ensure that you have enough cash on hand to pay your other responsibilities.

6. Increase your prices

A company owner should review the business rates on a frequent basis to ensure that they are covering their costs and on target to earn a profit. It is typical in the early phases of a business to lack sufficient data to determine appropriate pricing. In reality, many businesses would offer a low price to attract consumers and verify their product early on. Therefore, after a company has gained a certain level of traction, it is possible to raise pricing, which is the most straightforward approach to boost profits.

7. Existing contracts should be reviewed to save money

Cutting costs is probably the most common method for a small business to increase its cash flow and profitability. Any business has a range of costs that add up over time. It is a good idea to keep track of your costs on a regular basis to verify that you are still utilizing them and that they are bringing value to your organization. Several businesses start to utilize a system that helps to negotiate existing contracts, for example, phone or internet expenses.

8. Owner salary reduce or deferred

One of the most straightforward strategies to free up cash flow in the near term is to cut or eliminate your income as a business owner. Please note that owner wages are a fundamental and necessary expense of the business, so it makes sense to pay yourself a salary and then reinvest it into the company to address any cash flow deficits, depending on the tax implications. Hopefully, this is just a temporary solution.

9. Create a credit line

A business line of credit is a simple way to help boost cash flow if you don’t already have one. If your company is registered and you’ve been paying your bills and invoices on time, you could be able to acquire a line of credit for your company that would provide a rapid cash injection. It is important to do some research to figure out which credit line is ideal for you and has the lowest interest rate. What you need to consider are the costs, the monthly payback rate, and a secured or unsecured credit line.

10. Make a monthly (or weekly) budget

Calculating your income and costs, as well as the related cash flow is one of the most important tools for small businesses owners to comprehend how much they can spend and how much they really need. Budgets don’t have to be extremely complicated or even accurate, they’re just projections that help to figure out when cash flow will occur. It’s necessary to keep it up to date when conditions change.

It can be difficult to manage your cash flow, especially if your company is expanding. It’s stressful to find yourself as an owner struggling for cash flow and/or extended credit while having a successful business. This is primarily due to business cycles, in which client payments are frequently received after ongoing orders have to be paid. As a result, it’s essential to have measures in place to deal with these concerns as they emerge.

Contact us today to do an overview of your cash flow statement and to provide insights on how to improve your business cash flow.