A cash-flow forecast is a key diagnostic tool for the health of a business. Without one, getting your business’s cash-flow right is almost possible.
Many businesses operating without a cash-flow forecast don’t even realise their margins are coming under pressure, according to Director of Financial Management Trainer, Jan Barned.
Small business owners in particular often shy away from putting together a forecast because they find it hard to gauge the affect different factors will have on cash-flow – events like the introduction of a new product line, marketing venture or extra staff member can have an uncertain impact.
But Barned makes the point that forecasting is a business skill like any other, with accuracy improving with practice and experience. The important thing is to just start doing it.
Here are Barned’s five tips for putting together a solid cash-flow forecast:
- Keep it simple: Piling everything into a cash-flow won’t necessarily make it a better tool. Focus first on the items that affect your cash-flow most heavily and add extras to the forecast if required.
- Standardise: Ensure procedures for collecting and reporting cash-flow data are consistent across all business units.
- Measure your accuracy: Set the level of variance from your cash-flow targets you are prepared to accept, and see how close you get each month. Where targets are missed, investigate the reasons and consider if changes are needed for next month’s forecast.
- Reward those who help: For all but the smallest businesses, putting together a cash-flow forecast requires significant input from staff. Make sure they know they will be rewarded for putting in the effort to provide accurate and timely data.
- Automate and integrate: If possible, set up business reporting and accounting systems so they provide automatic inputs into your cash-flow forecast.
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