Managing cash flow is essential to business management. Revenue can fluctuate, and expenses need to be paid on time to maintain a positive working relationship with vendors, utility companies, and employees.  

Thankfully, there’s a way to know what your cash flow could look like down the road so you can plan appropriately, and forecasting can provide these insights for business leaders.  

What is forecasting? 

Forecasting is the practice of using existing business data to create a model for what your business looks like now, as well as weeks, months, and even years down the road. This essential reporting is what allows business leaders to make real-time decisions based on the health of the business.  

While there are different types of forecasting, rolling forecasting provides more information about the future by using existing data to predict performance in a certain time period. Whichever method you choose, building accurate models using complete data is essential.  

Tips for accurate forecasting 

As a business leader, you can make decisions on the direction of your business all day. If the data you’re using to make those decisions is not accurate, you could end up with less than stellar results or unexpected cash flow issues. Here are some tips to ensure you have the right numbers to base your decisions on.  

• Keep detailed records. Every expense should be tracked down to the penny. Don’t round or estimate when recording them. In addition, accurately categorize all your expenses.  
• Consider upgrading from manual tracking. While spreadsheets can be an amazing tool, there’s a point where they can become a hindrance to your operations. Using time management or bookkeeping software to help track expenses, payroll, and other operations can be more efficient for your business.  
• Adjust your forecasting process as your business grows. When your business starts to reach new heights, forecasts could involve more complex numbers (or a greater number of categories to review). If your business is experiencing growing pains, you may want to consider outsourcing to a trusted accountant or knowledgeable part-time CFO who can provide new insights and more efficiencies for you as a business leader.  

What to include in forecasting 

When creating your forecasts, you should include certain elements to ensure sure you’re getting the most accurate outlook possible. This includes: 

• Current expenses 
• Current revenue 
• Expected future liquid cash  
• Potential future capital purchases 
• Upcoming marketing and travel expenses
• Accounts receivable: both outstanding invoice amounts and the expected pay date 
• Accounts payable: amount owed to others and when it must be paid by 
• Long- and short-term debt payoff 
• Future quarterly tax payments 

While it’s important to create a budget and stick to it, forecasting is an equally important business function that can help direct the future of your company. Forecasts will allow you to foresee upcoming roadblocks or cash flow concerns so you can plan for and adjust around them.  

Our firm is available to help you with regular forecasting data, setting up a system for you to create forecasts, audit your current system, and provide outsourced CFO services. Reach out to us to discuss how we can help you today!