Top tips for successful cash flow forecasting

28th March 2017

It’s not uncommon for businesses to put off forecasting their cash, often due to a lack of time or perceived value of doing so.  In reality, cash flow forecasting not only helps ensure you meet all of your outgoings but can also put you in a stronger position to support future growth. Forecasting can also help you avoid conflict with suppliers or making snap funding decisions which may not be appropriate.

Cash flow forecasting starts with an analysis of your current cash position and short-term cash flow requirements. By looking at a few simple indicators, such as your stock holding period, creditor and debtor days, you can get an accurate picture of how much of your cash is tied up at any one time. A cash forecast covering one or two months should enable accurate assessment of short term cash needs of the business to be made. Prepared showing expected payments on either a daily or weekly basis, this will assist in setting targets for credit control and invoicing. This high level analysis quickly gives you an insight into your cash position.

By extrapolating your monthly position across the year, you can start to think about any major costs which may be coming up such as investment in new hardware, or the impact of a likely  dip in sales resulting from seasonal variation.

When building a long-term forecast, start with the information you know such as fixed costs that won’t change, and use historical data around sales and costs to fill in the gaps. Then adjust your figures to reflect any decisions you have made or intend to make that will impact on these.

Once your basic cashflow forecast is in place, 15 minutes every month should be all the time most businesses need to keep it up to date.  This will help ensure you have a strong handle on your company finances, and provide the confidence to take decisions that will drive your business forward.

For more information and free spreadsheets which incorporate the basic formulas you need to get started, please get in touch.

This article originally appeared in HB&O’s summer 2016 Bottom Line Magazine as part of a wider feature on Managing Cashflow. To read the full article, download the magazine.