Cash Flow Forecasting Models: What To Know

Why Is a Cash Flow Forecast Model Important?

Your cash flow forecast model helps you do all of the following for your business:

• Anticipate Cash Shortages: By predicting when cash might be tight, you can take proactive measures and stay in the green.

• Strategic Decision Making: Whether it’s expanding operations, hiring new staff, or making significant purchases, a cash flow forecast gives you the information you need for informed decision making.

• Investor and Lender Confidence: A well-prepared cash flow forecast helps you increase your credibility with lenders and investors, acting as proof of your viability and promise as a company.

Understanding Monthly Cash Flow Forecast Models

The monthly cash flow forecast model is a valuable tool, especially for short-term financial planning and management. Each model typically covers a one-year period, offering a month-by-month projection of cash flows. This detailed approach offers several key benefits:

• Enhanced Cash Management: These models give you a near-term view of cash availability, helping you manage your overhead efficiently. By understanding the details of your monthly inflows and outflows, you and your finance team can better plan for expenses, investments, debt repayments, and other essentials.

• Improved Accuracy: A monthly cash flow forecast model gives you and your team a zoomed-in view of your income and expenses, leading to more accurate forecasts. The details provided by your forecast help you quickly adapt your strategy in response to unforeseen changes in cash flow.

• Risk Mitigation: Using a well-designed cash flow forecasting model template helps you spot potential cash shortages in advance, giving you enough time to respond to an issue before it turns into a crisis.

Monthly Cash Forecast Models vs Financial Statements

A monthly cash forecast model works alongside your financial statements, giving you a clearer picture of the state of your business’s finances. Here are some key distinctions between financial statements and monthly cash forecasts:

• Purpose and Use: Financial statements are retrospective — they give you a historical record of what happened financially within your business during a specific time period.  On the other hand, cash flow forecasts are predictive, offering a forward-looking view that helps you plan and make wise decisions.

• Detail and Frequency: Financial statements typically update quarterly or annually and give you and your staff a broad overview of your business’s financial status. Monthly cash flow forecasts take a detailed and frequent (usually monthly) look at your income and expenses, helping you plan well for the future.

• Dynamic vs Static: Financial statements are static and follow strict accounting standards and formats. Monthly cash flow forecasts are more dynamic, flexible, adjustable. As your financial situation changes, your cash flow predictions will change as well.

• Decision-Making Impact: While financial statements help you understand past performance and often help your company maintain compliance and reporting standards, cash flow forecasts make a big difference in future planning. They directly influence your operational decisions, including calls related to staffing, inventory management, and capital.

For the best insight into your finances, we recommend combining monthly cash flow forecasts and financial statements. This pair gives you a comprehensive understanding of your business’s financial health.

Look to TGG for Next Steps

When it comes to mastering cash flow forecasting, partnering with pros makes all the difference. As specialists in the field of business finance consulting, we bring decades of experience and a commitment to your success to the table.