It doesn’t take years of experience running a cashflow forecast to understand that it really is just a process of tracking cash in vs. expenses out. There are many tools available to track your cashflow, or you can opt for a simple spreadsheet and manage it yourself.
If you’re going to put time into managing your cashflow forecast, then we believe that one of the most important things you can do is consider upfront how you are going to use the information that you gather. This will help you to understand the value of the time you invest in creating your forecast, and in keeping it up to date. You’ll also recognise the benefit of making sure it’s realistic and simple. Let’s take a look at the ways that you can use your cashflow forecast to maximise its value to your business.
Review the timings of payments and investments
If you’re using some kind of system for cashflow forecasting, then you should be able to use your forecast to optimise your spending in order to maximise your cash position. Using your cashflow forecast will allow you to identify when, and when not, to spend your money. You should be able to identify when you have money available and when you do not. You will also be able to review your other expected costs which may vary from one month to the next.
Using your cashflow forecast will allow you to optimise the timing of your purchases and investments in order to ensure that you have the needed cash available and your spend does not clash with other costs that you are expecting. If you identify that you don’t have cash available for a purchase in a particular month, then you can choose whether to postpone the purchase or – if it’s needed now – consider your finance options.
Manage cash shortages
In an ideal world your business would be in a strong revenue position and you wouldn’t need to worry about cash shortages. But realistically it’s an important part of managing cashflow forecasts to perform the juggling act that ensures that you are maintaining a cash position that allows your business to operate. If you see fluctuations in your expenses or revenue, you may need to plan for a time when you don’t have sufficient cash to manage your day to day costs. This will especially be true if your company is entering a growth phase and requires investment upfront in order to yield future results.
Because you are managing a cashflow forecast you should become aware of your cashflow challenge well in advance of it actually occurring. This means that you will have time to work through possible solutions such as changing the timing of variable payments or managing invoices to improve the volume of cash coming into the business. If balancing revenue vs. expenses is not possible then you may need to consider external finance options.
Plan your finance options
Once you’ve got a handle on a cashflow challenge that’s about to happen, you should have plenty of time to review your finance options in order to make sure that you choose the right provider and solution for your business. Review your forecasts and identify the length of time that you expect to need finance for – the closer you can match your finance timing to your need, the less it will cost you. Try to consider some flexibility in relation to finance amount, because if circumstances change in advance of the finance period you may need to adjust your requirements.
Build a benchmark
The time that you invest in building and managing a cashflow forecast will also provide you with a valuable tool that will allow you to benchmark your performance against your estimates. By taking the time to track your actual position against your forecasts you can reflect upon, and learn from, any variance while managing the elements that have caused you to achieve your results. When you get your forecasts right, take a moment to celebrate the accuracy. Use your forecast as a tool to help you recognise and reward successes.
Take the opportunity to ‘run the numbers’
Your cashflow forecast allows you to benchmark your performance, and it also allows you to consider ‘what if’ with the benefit of some robust estimates to back up the thought process. This is an excellent tool with which to review the impact of future business scenarios, such as increasing staff numbers; implementing new products; or exploring new markets. Make sure that you are realistic in your estimates and include the impact of increased revenue as well as considering any growth in costs.
Managing your cashflow forecasts provides you with an important tool for understanding your day to day cash position both now and in the future. Advance warning of any potential issues gives you time to react and put plans in place to ensure that your business can continue operating despite increased costs or reduced revenue. It’s important to consider the many ways you can use your cashflow forecast to support the operations and growth of your business. This will both help you to understand the value of the time that you invest in managing your cashflow forecast, and is an important step on the path to unlocking your company’s true potential.
Introducing Fifo Capital
Fifo Capital provide alternative finance solutions to small to medium sized businesses. If you’re looking for a cash flow boost and would like to enjoy fast turnarounds and one to one service that’s there when you need it – why not contact Fifo Capital today?