Overseeing cash flow is key to business management. Incoming revenue streams fluctuate, and expenses need to be paid on time to maintain a positive working relationship with vendors, utility companies, and employees.

Thankfully you don’t have to leave this up to guesswork. With forecasting there’s a way to know what your cash flow could look like down the road so you can plan appropriately and anticipate changes as business leaders.

What is forecasting?

Forecasting is the process of using existing business data to create a model for what your business looks like now, as well as weeks, months, and even years down the road. This fundamental tool is what allows business leaders to make real-time decisions based on the health of the business.

While there are multiple variations of business forecasting, rolling forecasting allows the user to continuously plan more information about the future by using historical data to predict performance in a defined time period. Whichever method you choose, building an accurate blueprint using complete data is essential.

Tips for accurate forecasting

As a business leader, you require accurate financials to make informed decisions on the direction of your business. If the data you’re using to make those decisions is not accurate, you could end up with less than favorable results and unanticipated cash flow issues. Here are some tips to ensure you have the right numbers to base your decisions on:

  • Keep detailed records. Every expense should be tracked down to the penny. Don’t round or estimate when recording them. In addition, accurate categorization of your expenses can help you pinpoint any fluctuations in expected spending.
  • Consider upgrading from manual tracking. While spreadsheets can be an amazing tool, there’s a point where they can no longer keep up with your operations. Using time management or bookkeeping software to help track expenses, payroll, and other operations can be more efficient for your business and your time.
  • Adjust your process as your business grows. When your business starts to reach new heights, forecasts could involve more complex numbers (or a greater number of categories to review). It’s important to give your forecasting a checkup to see if it still fits your needs. If your business is experiencing growing pains, you may want to consider outsourcing to a trusted accountant or knowledgeable part-time CFO who can provide new insights and more efficiencies for you as a business leader.

What to include in forecasting

When creating your forecasts, you should include certain elements to ensure you’re getting the most accurate outlook possible. This includes:

  • Current expenses
  • Current revenue
  • Expected future liquid cash
  • Potential future capital purchases
  • Upcoming marketing and travel expenses
  • Accounts receivable: both outstanding invoice amounts and the expected pay date
  • Accounts payable: amount owed to others and when it must be paid by
  • Long and short-term debt payoff
  • Future quarterly tax payments

While it’s important to create a budget and stick to it, forecasting is an equally important tool that can help you direct the future of your company. Forecasting teaches you to look for the upcoming roadblocks and any cash flow concerns so you can adjust for and plan around them.

Nick Crawford is a senior accountant with at Cordell, Neher & Company PLLC in Wenatchee. He is a graduate of Central Washington University and holds degrees in accounting and business administration. He can be reached at (509) 663-1661.

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