It’s pretty unanimous, cash flow is the single most important issue in any business.

Ignoring the individual size and structure of each business, it’s becoming increasing clear that managing your cash flow effectively is more important than it’s ever been. Cash is King is a phase we’re all familiar with, but do all companies adopt this attitude, and what are the key steps to forecast and plan successfully?

Forecast at least every week

This is mostly dependent on the current security of a business, but unless the business is struggling financially then a daily forecast would be advisable. More sparse analysis may well hide situations where the difference in the weekly inflows and outflows of cash could cause issues for the business.

Continue to forecast well into the future

Weekly cash flow analysis provides a good insight into liquidity; but in identifying whether external funding is necessary, it’s essential to look further into the future. The ideal situation is to have a model that incorporates both weekly and monthly forecasts.

Alter between different approaches

The conventional short term cash flow forecasting will involve checking receipts and disbursements from accounts receivable. Using a longer term model will use more indirect methods, such as modeling assumptions about the income and expenditure items in a forecast profit and loss account. It would be ideal to have the flexibility to interchange between the two methods, essentially giving the best of both worlds.

Forecast in real time

The modeling tools used should be reflective to the current state and reality of the economy. Equally the tools used should be easy to adapt and amend in order to product different scenarios. This means to effectively be able to easily change the business rules that underpin the model and receive the results back instantly.

Monitor the model that’s used, how accurate is it?

Monitoring the variances between the forecast and the actual cash flow will subsequently identify instances where improvements could be made. Once the changes have been implemented, the impact should be monitored to ensure that they are valid.[/vc_column_text][/vc_column][/vc_row]

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