Why You Need a Long-term Cash Flow Forecasting Habit
What do puppies and Float have in common? Neither are ‘just for Christmas’. And while Float can’t offer you an adorable waggy tail every time you enter the room (yet…), we can offer peace of mind that your future cash flow is under control.
Recently, businesses have been scrambling to get cash flow forecasting in place, and for good reason. As the coronavirus pandemic continues to spread across the globe, the future has never felt quite so uncertain.
Developing a cash flow forecasting habit now can set you up in a strong position to make key business decisions with confidence as you move forward.
How long should a cash flow forecast be?
Most businesses should create a cash flow forecast for at least one year ahead. While your cash flow predictions for the next three months are important to see anything imminent, a 12-month cash flow forecast can help you plan for the future of your business.
Planning in advance helps you answer important questions right now, like: will my business be profitable in 12 months’ time? Should I apply for government business support to help my business through coronavirus? Can I afford to keep paying all members of staff a full wage?
The benefits of continuous cash flow forecasting are vast. Here are 3-steps to help you develop a cash flow forecasting habit that works.
1. Be realistic with your numbers
Without accurate data, cash flow forecasting can feel a little bit like gazing into a crystal ball hoping for a glimpse of the future. The best way to make sure your predictions are accurate is to base your numbers in reality.
Overestimating can potentially lead to shortfalls in working capital, whereas underestimating could lead to your business missing opportunities that in reality you can afford.
Lay the groundwork for effective cash flow forecasting at the start by making sure your initial forecast is based on accurate numbers.
2. Update your forecast regularly
The mistake many businesses make when cash flow forecasting, is to create a budget and then consider it done and dusted. However, in the world of business, things can change at a rapid pace, as we have recently seen.
The key to keeping your long-term cash flow accurate is to regularly log in and review your budgets. Think of your cash flow forecast as something that grows and evolves. It requires regular attention to thrive and reflect your business’ changing needs.
We recommend you log into Float at least once a week to keep your cash flow forecast accurate. At the click of a button you can update the expected payment dates on bills and invoices, as well as update your budgets. By regularly tending to your forecast, you can look to the future of your business with a new sense of control.
3. Think about the what-ifs
Part of your cash flow habit should involve thinking about alternative scenarios. Using our Scenario Planning tool, you can plan for best-case and worst-case scenarios, and either way you’re prepared to hit the ground running.
For example, what if you do decide to take some government business support in the form of a loan? Will the repayments be affordable to you? How will the interest accrued impact your repayments?
Looking ahead at what big expenses you need to pay will help you build up the capital in the run-up to them coming out, so a large payment makes less of a dent in your cash flow.
Likewise, a continuous cash flow forecast can help you understand if you need to cut costs now to help your business survive in the long-term.
Accurate numbers, consistent input and scenario planning: these are the three most important elements of any cash flow forecasting habit. So start your cash flow forecasting habit today – your future business will thank you for it.
Remember we’re here to support you, whether you’re brand new to cash flow or you’ve been using Float for a while. We’ve created a COVID-19 cash flow resource hub to support all kinds of businesses through this difficult time, which includes details on our extended free trial offer.