Running a successful business means predicting trends. No company can standstill. Staying ahead of a changing market means developing a strong sense of where things are headed.
This is true in strategic terms. But an understanding of the future also plays a tactical role. As you look to plan the weeks and months ahead, you need to have a clear picture of your upcoming cash flows. Without this basic information, simple tasks (like making payrolls or covering expenses) can suddenly become a challenge.
However, as important as cash flow forecasting is, the task comes with complications. It isn’t always as easy as it seems. With that in mind, here are four ways to improve your process, so you can accurately forecast your cash flows and keep your company on a steady footing.
How to Improve Cash Flow Forecasting
Create a Formalized Process
During the busy flow of day-to-day activity, you probably have little time to sit down and start messing with spreadsheets. Sure, you have an instinctive feel for your cash flow and you’ll compute it for quarterly financial documents. But you don’t have time for formal predictions.
You might want to make time. The resources invested in cash flow forecasting can save you headaches down the line. A formalized process gives you a more accurate view of the situation. Meanwhile, you’ll have the information you need to make clear-headed decisions.
Gather as Much Data as Possible
Once you’ve committed resources to a cash flow forecasting process, you need to develop reliable sources of data. As much as possible, you want to receive real-time information about your cash flow situation. That means coordinating your various departments and involving the appropriate individual employees.
Here are a few tips that will help you develop a high-value process:
- Identify crucial information, including expenses, pending sales, outstanding invoices and collections
- Create a process for delivering the information
- Choose software to help compile and analyze the data
- Consider outside experts to help develop your cash flow forecasting process
Conduct Regular Updates
Conditions can change fast. One of the lessons of the pandemic and its aftermath: you can’t get comfortable with the economic situation. Don’t assume anything is permanent.
As such, you need to be ready to reassess your cash flow forecasting assumptions. Otherwise, your thinking will become too dogmatic. You’ll misjudge the circumstances and potentially put your company at risk.
Instead, schedule regular reviews of your process. Look at your forecasting models and compare them with the current situation. Review how well your previous predictions have matched reality and make necessary changes. That way, your ability to project your cash flows will improve over time.
Do Contingency Planning
Given the uncertainty inherent in the economic landscape, stay prepared for multiple outcomes. Don’t just have a single cash flow estimate. Rather, consider best-case and worst-case scenarios (as well as some situations in between). This will help you stay prepared for anything.
Along with this, create contingency plans. Know what you will do if an emergency arises. That way, you aren’t caught off guard in a difficult situation, forced to react under tight deadlines and high pressure.
Looking to Improve Cash Flow?
Part of this process involves having the right funding options in place. By creating a strong financing backbone, you’ll have the resources you need to weather any storm. A top partner, like Frontline Funding, can bring you the peace of mind you need for any cash flow scenario.
Contact Frontline Funding today to learn more.