How well can you predict the movement of cash through your company? Creating reasonable and accurate cash flow forecasts is crucial to anticipating your operational needs and achieving your business goals.
Want to accurately predict your cash flow? Start by analyzing your company’s past performance and evaluating its current position, which will enable you to create reasonable projections for your future inventory, receivables, payables, and cash on hand. Effective cash flow forecasts can help you make informed decisions that will ensure your business’s success.
5 steps to accurate cash flow forecasts
1. Be realistic.
Optimism is key to success in business but not to reliable cash flow projections. Create well-balanced, realistic forecasts based on your company’s financial history and reasonable assumptions about future business and sales trends.
Forecasts should be as detailed as possible and include monthly or even weekly projections with data from all your business units. Averages can mask cash flow challenges, so make sure you avoid them. Consider seasonal variations, which may require expenditures to meet increased inventory or production needs followed by periods of cash surplus. Be sure to incorporate best-case and worst-case scenarios into your financial planning.
2. Use accurate projections.
Accounting software can provide insight into your financial data. Detailed cash forecasts offer:
- Flexibility to create “what-if” scenarios so you can identify options to meet rising or declining sales quickly and accurately.
- Integration of financial data into your projections, improving accuracy and keeping figures up to date. Digital reporting and transaction products, including automatic information updates, can help you track specific details.
- Statistical comparisons of your predictions to actual results so you can adjust your forecasting strategy accordingly.
3. Gain more control over your cash flow.
Manage variations by using:
- Accelerated billing – Get invoices in the hands of your customers quickly so you will get paid faster. Consider implementing point of service (POS) invoicing, distributing invoices electronically via email or text, generating invoices automatically with sales contracts, and providing online payment options with Merchant Services. The sooner your customer has an invoice, the faster the payment cycle.
- Integrated payments – Reduce processing costs and tighten up posting cycles by sending payables through Truist, which will issue payments via ACH, credit card, wire transfer, or check, depending on what the situation calls for.
- Remote deposits – Gain immediate access to your receivables by depositing checks, money orders, or cashier's checks electronically. Remote deposits eliminate the need for in-person visits and offer flexibility and convenience by allowing you to make deposits multiple times a day, at your convenience.
4. Position your business to take advantage of the best financing available.
Access better loan options and rates by planning ahead. Assessing your company’s financial needs and creating cash flow forecasts 12-18 months in advance will give you time to secure credit and investors suitable for your business. Measure your company’s performance by comparing your own data to information from similar businesses and use industry benchmarks to guide your next steps.
5. Consult your advisors.
Your company’s trusted advisors understand your business and can provide objective opinions and suggestions. Ask your accountant, Truist relationship manager, attorney, or industry advisor to review your cash flow projections. Use their experience and financial acumen to make your forecasts more accurate and identify areas of your business for improvement.