The importance of cashflow forecasting
Cashflow forecasting is essential in any business, and can support your immediate survival. But how far to take it, and where to begin, are important factors to be decided by you, but it can ensure the long-term life of your business.
Grabbing your current cash balance, debtors and creditors, then working out if there is enough cash to cover rent and salaries for the next few months is perfectly sensible. It’s quick, easy and gives us comfort that your business is cash sufficient.
However, if a few extra hours can be put into it the results are worth the time. The forecast can be expanded beyond the immediate future to a longer-term outlook, and enable you to put in contingencies for those late payers!
It’s not uncommon to raise invoices at the end of the month with terms of 30-60 days. This means that often our biggest payments such as salaries, rent and cost of goods are due within the same few days that debtors are due to pay. But if you’re relying on that coming in to cover costs, this can cause issues.
At CRF we like to plan for a few clients not paying on time. Why? Because every business can miss an invoice or have a processing issue and on that basis it’s vital to know if we have contingency. We don’t want to portray a constant cycle of negative planning, that’s not healthy or productive, but contingency planning is essential.
Further to this, it’s about forecasting revenue beyond what is known. This takes experience, judgement, and an unbiased outlook.
Planning sales is an art not a science; connecting your deep knowledge of the business with professional cash planning experience will result in a smooth process which in turn will bring trust in the system and clarity on cash position.
There are dangers with both underestimating and over estimating cashflow – one means we think we might go bust, the other gears us up for a disappointment and possibly over-eager investment in expansion.
It’s important to strike the right balance so you’re as close to correct as you can be. We believe these added elements can positively impact your business without taking too much additional time. CRF can help your business with cashflow forecasting, and help you implement processes to finesse the art of it!