Almost half of the small businesses fail within the first 5 years, according to a recent American survey. Aggravated cash flow problems are reasons for failure in 82% of the cases. “No wonder this happens; most of the newbie small business owners are unaware of cash forecasting until they run into some sort of problem”, says one of our accounting experts at Back Office Accountants.

Cash flow forecasting – An in-hand compass for business owners:

A business owner must have a controlled grip over both short-term operations and long-term goals of the business. While acing short-term operations needs tactical support, planning will warrant strategic help- the owner must ensure both for the success of the business.

However small business owners often don multiple hats and are swamped with all kinds of work to cater to day-to-day operations. They most often miss the strategy which poses all kinds of problems which over time catch up and eventually derail the business.

This is where cash flow forecasting can help. Given cash flow is the strongest indicator of business health, cash flow forecasting provides strategic help by predicting the cash flow over a certain period. When clubbed with your goals, it acts as a compass by helping you proactively guide your ship with minimum risk.

Unfortunately, due to a lack of time or expertise, most small businesses ignore cash flow forecasting which can be a huge mistake in this market. So in this, we blog we aim to give a quick refresher about cash flow forecasting a give out simple tips that can help them with cash flow forecasting. Read on:

What is cash flow forecasting?

Cash flow forecasting is a meticulous process so estimating the inflow and outflow of cash over a certain period – more often it is 12 months. A cash flow forecast document is a spreadsheet comprises of predicted income and expenses to provide a glance at the most probable cash flow for that period.

A neatly done cash flow forecast document can predict the company’s future cash positions &cash surpluses and forecast your income, sales, and cash shortages with good efficiency. All these details and their derivatives can help business owners take swift and proactive business decisions about whether to steady or grow the business. But how to ace cash flow forecasting?

As one of the leading remote accounting firms in the business, Back Office Accounting has been helping business improve their financial performance with expert accounting help across all branches. Our accounting experts have helped many businesses create a cash flow forecasting model and here are 5 simple tips they vouch by.

5 simple tips for businesses who aim to ace cash flow forecasting:

  1. Understand the cash conversion cycle:The time taken for a dollar to come back into a bank account is called a cash conversion cycle whose understanding will help you improve the accuracy of your cash forecasting. Spending more time with your accounting team to solidify the inflow and outflow of the money and tits timing associated with different vendors and clients is the key. Make a special note of variable costs, fixed costs, and miscellaneous expenses to account for in the analysis.
  2. Account the seasonality: Accounting for seasonality in cash flow analysis is forecasting 101. Every business has its seasonality which has a predominant effect on the purchases and cash flow cycle of the business and no one knows seasonality better than the business owner. Accounting for the seasonality and anticipating the varied conditions according to the market will help fine-tune the forecasting.
  3. Predict and build multiple scenarios:There is nothing linear about cash forecasting, especially after what the business world has been through during the pandemic. However, business forecasting always counts for multiple forecasting and so should you. At Back Office Accountants, we often create different scenarios to ensure we are in control of every possible situation. As a business owner, you can create best, worst and most likely scenarios and a few other variations to stay prepared. This will help businesses to act decisively and enable them to prepare strategic plans to stay on the right course.
  4. Adjust, update & repeat:Historical data is a gold mine when it comes to cash flow forecasting. By understanding the business’s historical performance and trends accountants can get a clear idea about the changes to be made in the current forecasting models. The cash forecasting models can be also updated on the go based on the current circumstances and strategize accordingly.
  5. Automate cash flow data recording and consolidation:The simplest way to level up your forecasting is to automate the cash flow data using the automated software available. Most businesses make do with manual data collection processes which no longer work when the data and the sources grow. Businesses will be well served by investing in cash flow foresting tools that can help them cut down time and improve accuracy at the same time.

However not all businesses have the right resources to invest in the right tools or have the expertise to make use of them In case you are a small business facing similar problems, you can outsource the cash flow forecasting to remote accounting firms like us at Back Office Accountants. You can contact us here: