Managing your organization’s cash flow forecasting has never been as important as it is now in our ever-changing economic times. The uncertainty of the global marketplace has brought many industries to their knees and forced major shifts in operations and planning in order to survive the current landscape brought on by COVID-19.
Especially during times like these, it’s a necessity to create and utilize a cashflow forecast in your financial reporting. This will serve as the blueprint for making the best decisions for your business and its finances.
A cash flow forecast is a proactive plan to manage an organization’s cash, including the timing of estimated inflows and outflows of that cash. Inflows include cash in the form of current accounts receivables, sales orders, projected sales, as well as cash from loans or the sales of equity and/or fixed assets. Outflows include the payment of cash to accounts payables, operating expenses, taxes, and the repayment of debt obligations.
Cash flow forecasts are built using estimated values based on historical data and industry trends. The difference between these estimates and the actual data is called variances. If you already have a financial reporting tool, like Synoptix, you’ll have immediate visibility into your historical data through a direct connection to your database. This allows you to easily compare what’s happened in the past versus now.
An accurate forecast should be updated regularly to manage the variances and be optimally effective. A cash flow forecast can be updated weekly or monthly. However, it’s in a company’s best interest to keep the forecasting cycle as short as possible, especially in times of crisis.
Short-term cash flow forecasting is an art as much as they are a science. It’s not just creating the visibility into your cash flow inputs and outputs, it’s the overall view into your data analytics, along with a realistic eye and understanding of your business’ overall financial health – especially when last year’s certainties are no longer predictable for this year.
Cash is King and critical for any organization. When managed properly, accurate forecasting guides the decision-making process and ensures that a business capitalizes on its opportunities, while serving as an early warning system by highlighting potential shortfalls in cash balances in advance.
Understanding your cash inflows is an important metric of your financial reporting to calibrate and forecast your sales for the next month, two months, etc. What you may have expected for your next quarter has likely shifted overnight. It’s absolutely imperative that you shift your expectations and adjust your forecast accordingly.
While making a realistic assessment of your inflows, you’ll also need to better manage your outflows. Prioritizing your outflows and recognizing your immediate expenses is what will allow you to understand and formulate your short-term outflow calculation.
A realistic and accurate understanding of your cash inflows and outflows is the foundation of a productive short-term cash flow forecast. Remember, the better the insights, the better the decisions.
As you know, in business, things don’t always happen as planned, especially right now. Here are a few tips to remember when putting together a cash flow forecast:
Most of the decisions that business leaders are making now aren’t small ones. They’re big and can have major implications for any organization. Many industries are being forced to cut expenses. Deciding where to cut cash outflows doesn’t have to be a gamble with a cashflow forecast.
Your forecast is a dynamic model that can be adjusted as needed. It allows you the visibility you need to make smarter business decisions both now and in the future for your company.
Jeana has been in the software industry for 13+ years specializing in ERP reporting solutions. She has decades of experience in creative content development and marketing and enjoys exercising, traveling & spending time with her husband & twin boys.
Download Spreadsheets-The Corporate Secret Killer & What to Do About It to better understand its inherent errors, how to manage quality control & overconfidence, with detailed solutions on improving spreadsheets in financial reporting.
Find out how Synoptix can improve your financial reporting and provide business intelligence for your organization.