It’s universally acknowledged that whatever business you’re in, it’s important to set time aside to create a cash flow forecast. Giving your cash flow the attention it needs will help you to take control of your company’s finances.

It will also give you the information you need to start identifying opportunities for improvement and efficiency. And with a little forward planning you could avoid a cash flow crisis. Here’s part one of our five part series on managing your cash flow.

Cash flow forecast

Be aware

A cash flow forecast will not mean that you have a crystal ball that predicts the actual future of your finances, but they will give you an element of certainty that will arm you in your decision making and planning.

The starting point for your cash flow forecast is now. Look forward in incremental steps – you may want to put a forecast in place for next week, next month, next quarter or next year. The more detailed you get, the better you will be prepared for the future.

Building a cash flow projection starts from the cash you have on hand at the beginning and works forward to capture the details of all receivables and payables.

1. Cash receivables

In building your cash flow forecast you will need to understand how much cash you can expect to receive in the form of customer payments, interest earnings, service fees etc for the whole business. The amounts you will receive and when you will receive them will create a timeline for incoming cash going forward.

2. Cash payables

The next step in building your forecast is to understand all of the cash that will be flowing out of your business, and exactly when it is expected to leave. Focus on accuracy and speak to all your staff members. Create a specific line in your projection for significant outlays such as salaries, stock costs, taxes etc. Review your accounts to-date to make sure that you have captured all potential areas of spend.

3. Align the current with the potential

Finalise your cash flow forecast by ensuring that it aligns with your business plan, company strategy, and sales and marketing plans. Each of these areas have the potential to include new initiatives and therefore new income streams and new costs.

Be proactive

Once you have built your cash flow forecast it’s important to do two things:

1. Keep it alive

Your cash flow forecast is only going to work for you if you keep investing time in it. It’s worth training a trusted member of your team to be your cash flow expert and track your performance against it as well as updating any expected future impacts. Try to update and review it weekly so that you stay prepared.

2. Prepare

Use the information in your cash flow forecast to prepare your business for cash flow shortages. There are a number of financial tools available such as bank credit, loans, invoice discounting or factoring etc. that can help you get through a lean cash flow situation. And there are also a number of business practices that you can adopt to keep your cash position healthy.

Your cash flow position has the ability to make or break your business. By implementing a cash flow forecasting system you can prepare your company for the future and put in place the right tools and systems to make the most of your assets and optimise your cash flow. Giving your cash flow position constant attention will support the success of your business. Preparing your finance toolkit in advance will allow you to access additional funding as and when you need it to support your day to day business operation and growth.

There is no crystal ball for predicting your future cash flow position but with the right plans and preparation, it’s certainly possible to take control of your financial destiny.

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