3 – Use Your Cash Flow Forecast to Manage Your Cash Position and Your Business
The previous second key was to update your forecasts frequently and improve their accuracy; however, the purpose of creating and maintaining an effective cash flow forecast is not to see how accurately you can predict the future.
Rather, the goals of forecasting are to understand the sources, uses, and timing of cash flows on a prospective basis, and to take action to manage and improve your cash position and your business. You will discover what customers or activities are driving positive cash flow, and what customers or activities are being financed by the company more than they should be.
Actions that you can take to improve your future cash position may involve bringing in cash faster by managing customer accounts receivables or by better utilizing your bank line of credit. On the other hand, outflows of cash may be slowed or reduced by controlling payroll and negotiating more favorable vendor terms. By reviewing the cash position of your business and re-forecasting frequently, you can uncover potential shortfalls and patterns, and monitor and control collections and controllable expenses such as payroll. You can also plan for major expenditures, such as equipment or other capital improvements, or quarterly payments for taxes and workers' compensation insurance. Managing and maximizing your cash flow will also help you to put a strategic plan in place to grow your company to the next level.
4 – Share Your Cash Flow Forecast with Your Bank
Once you have developed the ability to actively manage your company’s cash position by taking action based on the results of your forecast, you should share your forecast with your bank. Your banker will be more willing to grant your company credit when you can demonstrate that you can accurately forecast how much cash your company will generate and when, and that you have the ability to control the timing and amount of cash expenditures to match your company’s cash receipts. An effective rolling 13-week cash flow forecast can be used to show your banker how and when loans will be repaid.
As a business owner, you will be able to sleep better at night knowing that your business has a plan in place to have the right amount of cash at the right time to handle its cash needs. The best way to gain this peace of mind is to develop and maintain an effective rolling 13-week cash flow forecast and to take action based on the results to manage and control your company’s cash flow position.
Ready to get started with your 13-Week Cash Flow Forecast? Download our Free Cash Flow Template or learn how a Fractional CFO can help you take your forecasts to the next level by scheduling a consultation.