Best practices for cash flow forecasting
No matter what sector you work in, cash flow shortages can cause plenty of stress.
Whether that’s issues paying suppliers, looming overheads, or trying to retain savings, cash flow management can help. The outlook for the current economic climate remains challenging for businesses. Whilst growth and recovery are slow, companies need to be cautious and well-prepared going into 2024.
So, to help you get a better idea of what this could mean for you, cash flow forecasting can provide much-needed clarity and preparation where it counts.
We’ll touch on some of the cash flow forecasting best practices in this guide, as well as:
- Outlining the importance of cash flow forecasting
- Best practices you can use in your forecasts
- How Time Finance can help you
Even if you’ve got forecast in place - but might need a little more breathing room due to cash flow issues - Time Finance can help.
Our finance solutions can alleviate some of the issues that arise from poor cash flow by injecting working capital back into your business or providing manageable payment plans around your key investments.
Our holistic approach to finance means we can work with you and your financial advisor or broker to tailor-make and match the best product for your business, with flexible repayment plans and terms.
To find out more, get in touch with our dedicated team today.
The importance of cash flow management
Maintaining a solid budget and paying close attention to cash flow is crucial for a business' stability, especially when a single shortage can drastically alter your plans.
For business owners, the importance of good cash flow management is crucial to the daily running of your business. Having a clear understanding of cost versus revenue ensures that you have enough funds to pay all of your essential bills while still making money.
So where does forecasting come in?
The power of cash flow forecasting
Forecasts are powerful planning tools, enabling you to consider a variety of possible scenarios. From here, you can pull together tentative plans based on multiple projections, feeling safe and secure that you’re prepared for multiple outcomes.
In a nutshell, forecasts can
- Optimise cash flows
- Enhance overall forecasting accuracy
- Help you make informed decisions
- Spot irregularities or patterns in seasonality
- And much more
Cash flow forecasting best practices you should know
At Time Finance, we know how crucial forecasting is for your business and your peace of mind.
With plenty of experience helping SMEs plan their growth over months and years, we’ll touch on some of the non-negotiables in this next section.
Combining short and mid-term projections
When dealing with forecasts, you’ll split your projections into short-term and mid-term timescales.
While each one has its own merits, combining them is your best bet for accurate forecasting overall. Let’s take a look at both:
Short-term forecasting is especially valuable in boosting KPI, by taking smaller components and viewpoints and forming a more comprehensive view of your business.
As such, critical issues can be spotted by looking at smaller variables, such as:
- Sales quotas
- ROI on marketing spend
- Overall profitability
You can improve on either of these insights by making changes in expenses or by raising prices, boosting retention and cashflow.
However, relying solely on the short-term view won’t be enough. That’s why many businesses take into consideration a longer, mid-term strategic plan.
On the other hand, mid-term projections typically cover 6 to 18 months.
Reviewing your position monthly provides a broader understanding of your overall situation and its surrounding environment, taking into account wider factors such as the market - which compliments short-term forecasting especially well.
Think about scenario planning
Scenario planning is crucial when it comes to improving the accuracy of your forecast. It also helps build your overall readiness for a number of situations, providing peace of mind when you need it most.
No matter where the economy is at the time of forecast, make sure to examine a number of different scenarios and plan accordingly. How would your company react from a cash flow perspective in each one?
With these scenarios effectively planned out your team can easily speed-up implementation when the time comes - especially when the unexpected occurs.
It pays to be prepared!
Compare actual results with forecasts
When forecasts come through, making sure you are comparing your actual results with your planned forecast is a great way to improve overall accuracy and reliability.
A good way to provide clear insights to your team is by generating automated variance reports. This shows exactly where targets are being met, exceeded, or missed, so everyone can grasp the impact of their actions on the entire business's success.
As well as providing a useful benchmark, you can also identify what’s working well in the forecast and where adjustments in projections are needed.
This will enhance the overall reliability of your projected figures, enabling better-informed decision-making throughout your organisation.
Update your forecasts regularly
In the same vein, make sure you keep updating a forecast that spans the upcoming 6-18 months.
Change is unavoidable, but over time your forecast will become a precise tool that can be relied upon time and time again, thanks to dynamic updates across the business.
If you only update your forecast once a year - or even once a quarter - you’ll be working with quickly outdated information. This leads to less reliable decision-making, which can also stop you from identifying problems when they occur.
Your business can only learn quickly and effectively through frequent updates.
By implementing these best practices, businesses can increase forecasting accuracy, manage cash flow more effectively, and make wise decisions that will lead to long-term financial success.
You can also make sure that you’re more likely to survive more volatile market situations while retaining a solid financial position by adopting rolling projections, analysing variations, and seeing where opportunities for financial growth could work.
Wherever your business is set to go, Time Finance has an impressive range of products to help you explore these untapped avenues or provide support when cash flow is tight. This includes invoice finance options, asset finance solutions, and even bespoke plans for business lending - which have helped our clients achieve their goals.
To find out more about how Time Finance can support you and your business with leading financial solutions, get in touch.