A well-designed cash flow forecasting model can be the tool you need to make sound decisions for your business. The cash flow forecasting model you choose can be as complex or as simple as it needs to be, depending on what information your business requires.
A cash flow forecasting model is the reporting structure plus the associated logic that helps you create a forecast. Typically, a cash flow model looks at two types of data:
- Actual cash flow
- Forecast cash flow
In other words, what does your cash flow look like now – and what does it look like in the future.
A cash flow forecast model tends to be built using two dimensions. Firstly, the reporting period – depending on how granular you want your forecast to be you may choose a model that is monthly, weekly or daily.
The second dimension is cash flow classifications – meaning the cash which is actually coming into and going out of your business.This is the way in which you group your cash inflows and outflows into meaningful categories for management reporting.
Choosing a reporting period – daily, weekly or monthly – will guide you towards the right cash flow model for your business.
Daily reporting is most useful for businesses focused on short-term liquidity management or those that require a high level of detail of the business’s day to day cash movements.
When selecting a cash flow forecasting model, use your business objectives to guide you. How much detail you need (or don’t need) depends on your business goals. By understanding which important data points you need to understand to hit your business goals, you’ll get a clearer picture of how granular you need your cash flow forecasting model to be.
For example, if you want to manage paying off business debt, a forecast that looks at least 12 weeks into the future and is updated on a weekly basis will likely work best towards achieving that goal.
Float makes the cash flow modelling process simple and straightforward. Float uses real financial data to model your cash flow and helps you see your cash flow on a daily, weekly or monthly basis to suit your business needs.