Saint & Co thank Float, one of our sponsors at BITE2018 for their support at our successful event last year and for writing this article about cash flow forecasting.
A lack of cash is the number one reason why businesses fail. But it doesn’t have to be that way.
By gaining insight into the inflows and outflows of your cash, you can begin to make more effective strategic decisions.
What cash flow forecasting can do for your business
Regardless of whether your business is just starting out, beginning to grow, or has been in operation for a while, keeping an eye on your cash flow is essential to establishing actionable plans, whatever they may be.
A cash flow forecast can allow you to plan for a rainy day, as well as for your blue sky scenario. Forecasting can show you when and where a cash gap may appear. This forewarning means that you can arm yourself against a cash crisis by tightening up expenses, securing finance or invoicing earlier.
Showing you the reality of your cash position, a cash flow forecast is an invaluable tool for growth, allowing you to know that you will have the right money at the right time. With an accurate forecast you will be able to pinpoint times when you have a surplus of cash that can be reinvested for growth. Furthermore, with scenario planning you can model out the impact of different decisions on your cash. These can include hiring decisions, opening a new location, taking on a new project or can even be used in contingency planning for a ‘worst case’ scenario.
How to forecast your cash
There are two ways to create a cash flow forecast, the direct and the indirect method. The direct method tallies all bills and invoices to give you an operational forecast that is accurate in the short to mid term. The second if the indirect method which derives a cash flow forecast from your profit and loss and your balance sheet, to give you a forecast that is accurate in the long term but cannot provide insight into the short to mid term.
We have created a free template to get you started forecasting your cash using the direct method. Use this method if you’d like to answer questions like ‘Can I afford to make payroll this month’ and ‘What if my biggest invoice is paid late’.
Float is a visual and accurate operational cash flow forecasting tool for Xero, Quickbooks Online and FreeAgent. Float updates your forecast with actuals from your accounting software every 24 hours, which means that you always have an up-to-date view of your available cash.