A cash flow forecast is a plan that shows how much money a business expects to receive in and pay out over a given period of time.
If a business runs out of cash and is not able to meet its obligations such as paying suppliers, creditors and staff, it will become insolvent. It is never an excuse for management to claim that they didn't see a cash flow crisis coming.
So, in business, "cash is king" really does apply. Cash flow is the life-blood of all businesses – particularly start-ups and small enterprises. Because of this, it is essential that management forecast (predict) what is going to happen to cash flow to make sure the business has enough to survive.
Fortunately, technology is available to help you do that much more easily now than in the past. In fact, you may not even need to open an Excel Spreadsheet as there are several great apps to help you manage your cash flow from anywhere at any time.
5 reasons your business needs a cash flow forecast
Before we get onto the apps, let's just consider why it's so important to manage cash flow in your business:
1. Early warning system: A cash flow forecast helps you identify potential shortfalls in cash balances in advance – think of it as an "early warning system". This is, by far, the most important reason to have a cash flow forecast.
2. Confidence: A cash flow forecast gives you confidence-based on real data, not on hope-that your business can afford to pay suppliers and employees on time. Suppliers who don't get paid will soon stop supplying the business. If employees are not paid on time, you can guess the rest: your whole business could crumble.
3. Encourage quicker payments: Preparing a cash flow forecast encourages the business to look at how quickly customers are paying your invoices and to rapidly spot any problems. Note – this is not really a problem for businesses like retailers, which take most of their sales in cash and credit cards at the point of sale.
4. Planning and Control: Your cash flow forecasting becomes an important discipline within your business' planning and financial control. It is a crucial management process, similar to preparing business budgets.
5. Manage relationships: Consistent, up-to-date cash flow forecasting makes it easier for you to manage external stakeholder relationships with banks and lenders who may require regular financial reporting from your business. Keeping your bank manager informed of your business' performance and cash flow situation certainly makes it easier to access additional capital should you need it in the future, for example, to fund expansion.
Cash-flow management apps that help you take control of your finances
Each of the following four cash flow management apps can make life a lot easier for small business owners looking to gain more control over what's coming in and what's going out of the business:
Float integrates with many accounting platforms and gathers information automatically, which means you don't have to spend time manually inputting data. With the ability to forecast cash flow years into the future, Float gives you a good idea of where your business is headed and allows you to plan more effectively.
Flow quickly identifies hidden poor payers, calculates the right time to pay bills and helps you understand how to make the right decisions to keep more of your cash in your account. The app scans Xero or QuickBooks for changes across your customers, suppliers, invoices and bills, predicting hidden things you need to know.
An integrated cloud reporting and forecasting tool that allows you to create insights for making better business decisions. You can easily create powerful, visual reports, and reveal key drivers that impact performance.
Helm automates the process of forecasting your future cash balance. It helps you chart your business' path to success and is easy to tweak and maintain. Once set up, Helm will make your payments exactly as you've planned them.
Cash-flow is critical: what's the next step?
It's never been simpler for a business owner to set up and maintain a close handle on the business cash flow.
Yet, despite its clear "life and death" importance, many business owners still struggle to come to terms with cash flow management.
If you're having cash flow problems right now or simply want to consider your options for implementing a better system in your business, please contact one of our advisors.