How a Cash Flow Forecast Can Transform Your Company’s Finances.

If you don’t know how much cash is flowing into—and out of—your business next month, you’re not alone. 

You might be in an industry where the standard payment model is a large lump sum upon project completion. 

You might have a business affected by seasonality, where revenue varies based on time of year. 

You might have a sales system that still has inconsistencies with customer close rates. 

All of that is par for the course in small businesses, and it doesn’t necessarily mean you’re using the wrong business model (although you do have to get that sales team up to speed).

However, if your company is often or unexpectedly strapped for cash, you do have an issue. You can’t use the bottom line on your P&L to make payroll or cover your taxes. For small to medium-size businesses, cash flow problems usually stem from a lack of proper budgeting.

That’s why being able to accurately predict your future cash flow is indispensable. You can’t just track revenue looking backward. You’ve got to anticipate what’s coming—especially if you’re not generating the same amounts consistently each month.

You can’t just track revenue looking backward.

When our finance team comes in to work with a client, the first thing we set up for them is an annual cash flow forecast—for 12 full months—broken down by month. As you’re creating the forecast, use hard data and project realistically. Otherwise, building the model is a waste of your valuable time.

  • Identify busy and slow seasons in the business and adjust your forecast for those months accordingly
  • Think through expected completion timelines for work tied to big lump sum payments
  • Factor in your A/R process—if you bill Net 30, don’t expect to get paid the same month you send your invoices out
  • Account for key hires and capital investments you plan to make during the year
  • Look back at your books for historical information to inform your projections

Now is a great time to build a forecast if you don’t already use one. Make it part of your company’s agenda for annual planning.

But the fun doesn’t stop there.

Inevitably, your operations won’t go exactly according to plan. You might sell more (or less) and spend more (or less) than anticipated. A project and its subsequent payment could be delayed. You could hit your sales stride and start expanding rapidly.

Your forecast needs to accurately account for your company’s financial history. To do so, you need to do two things:

(1) Close your books every. single. month. And as close as possible to the actual end of the month, please. 

(2) Update your forecast by filling in the real numbers from the month that just passed. You’ll have those numbers once you close your books. Seriously. Close them.

A forecast isn’t a “nice to have” tool in your business. It’s essential to getting a grip on your company’s finances and helping you make the right investments to grow. 

Ready to get a monthly forecast up and running in your business? 

You’ve got two options:

(1) Download our free Budgeting and Cashflow Tools and make your CFO or Controller accountable for managing the process every month.

(2) Contact us to see how we can help. Our finance team can set up your forecast or run the whole system for you on a monthly basis.

100% open and honest: Any company we’ve worked with to implement our finance tools has been totally transformed by the process. So whether you tackle it on your own or reach out to us for support, don’t gloss over this one. It will change your business for the better.

–Eric Crews
Founder & President
Crews Consulting Group 

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