Cash Flow Forecasting – What’s Your Excuse?

Piggybank and calculatorCash flow forecasting is by far the most important cash management tool for business. Over the years, I have written many articles about why businesses should forecast their cash flow. When I bring this up to my clients, I typically see a lot of heads bobbing in agreement, yet few really take the time to develop a regular and meaningful cash flow forecasting tool. Why not?

Excuse #1: I’m not a numbers person

If you are not a numbers person, you had better make it a priority to have one available…not necessarily full time, but as needed.  After all, business is all about the numbers….sales, customers, employees, profit etc.

Excuse #2: I don’t understand what it is or what it looks like

Cash flow is simply defined as the movement of money in and out of your business. There are many online templates available as a starting point to develop a format.  What’s most important is to understand your business’ unique cash flow. The format is secondary to the thought process of truly understanding how cash flows in and out of your business and the related timing of that activity.  

Excuse #3: It won’t be 100% accurate

Never happens and never will!  Is there anything you do in business that’s 100% accurate? Cash flow forecasting is our best educated guess as to what may happen under a certain set of assumptions.  The truth is we get better at it the more we do it.  Our assumptions become more detailed and realistic over time.  So our first forecast is a starting point and it will get more accurate.  It’s still better than the most seasoned “gut” feel!

Excuse #4: It takes too much time

What of the most important things in business don’t take valuable time?  The benefits far outweigh the time spent in developing a cash flow forecast.  Most of the time will be spent up front in developing the template for how cash flows in your business.  Updating it on a regular basis will be time well spent in planning and controlling your cash flow.  If you don’t want to invest your time to develop it, then get it done through an outsourced expert.  Mastering your cash flow forecasting and management is critical to staying in business.

Excuse #5: My bookkeeper/accountant should be preparing it for me

In my experience, I have found few, if any, bookkeepers/accountants that are capable of developing a cash flow forecasting template.  They are transactional professionals and rarely understand how the business works at a higher or “futuristic” level.  Developing the cash flow forecast is a collaboration of the business owner and the bookkeeper/accountant. They are invaluable in providing historic information as a basis for the forecast.  Once the cash flow template is developed, most can populate a large portion of the forecast.

So now that I have addressed the objections, I’ll highlight some important reasons for developing your own cash flow forecasting tool:

  • It allows time to plan for both surpluses and deficits…anticipate not react!
  • Many profitable businesses fail due to lack of timely cash flow
  • It enables you to manage your cash – NOT be controlled by it
  • You wouldn’t allow your business to run out of inventory…why would you not manage your cash with the same urgency?
  • If you want to borrow money from a bank, you’d better have a cash flow tool that you can prepare
  • Profitability and cash flow are not synchronized, so understanding the timing of your cash flow is critical.

In my next blog, I will demonstrate my process for developing a cash flow template for your business, including how to determine the frequency and timelines for updating the cash flow.

Want to grow? Manage your cash flow!

Written by

Rick Arthur is a CFO whose expertise is built on Financial Intelligence and 35 years in senior financial roles. Coupled with a CEO’s perspective and the experience of building his own $20 million company, he brings a unique depth of insight into business from the top down. Wired to get to know people, Rick works hand-in-hand with business owners of intentional, growth-oriented companies, solidifying relationships as a trusted advisor and confidant to his clients. He leverages his experience to help business owners gain traction and stay laser-focused on the company’s vision, cash flow, and profitability – all while creating big picture solutions for strategic planning, growth and sustainable success.