Sign up to receive accounting tips, videos, news and webinar info before anyone else
Cash flow forecasting can be a lifesaver for your business during uncertain times and preparing financial forecasts in advance is always the best option. But if you have been working to navigate COVID-19 without any forecasts, remember — it’s never too late to start.
These forecasts provide your team with a better understanding of your business and how well it is functioning. This information allows you to make timely, well-informed decisions without excessive effort. Wondering where to begin? Here are our top tips for cash flow forecasting:
First, explore the impact the “worst-case scenario” might have on your company if it were to occur at any given moment. Consider how your company will function after the loss of clients, in the case that payments that cannot be fulfilled or are delayed, or following the closure of office space. You have to determine where you can allocate funds to stay afloat and how you can meet changing market demands and conditions.
This forecast can also be used as a scenario test. If you plan for a worst-case, best-case, and actual scenario you can see the direct impact of layoffs, decreases in revenue, or the potential to need to take out a loan.
A normal cash flow forecast would use the numbers from prior years to create best and worst-case scenarios, but in light of the current situation, a little more flexibility may be necessary.
Begin with a 13-week cash flow that is being updated on a weekly basis. This ensures you’ll see an accurate representation of the consistent patterns in your cash flow. Use specific calculations to base your predictions on realistic assumptions that can be altered to be updated as needed. Lastly, communicate with both your customers and suppliers to understand payment timelines. You may need to adjust your contracts to gain cash flow or foster client relationships.
As you continue to navigate the effects of coronavirus, cash flow forecasting can be a great tool to create success in the long term. With our cash flow forecasting tool, TGG has helped businesses large and small plan their day to day operations, manage to their goals and navigate cash crunches and other critical times that can stretch a business’s cash position. Download our Cash Flow Forecaster to gain a better understanding of how you can prepare for the future of your business.
This post was reviewed by our team of accounting and financial experts. TGG’s mission is to make business owners’ lives better through excellent financial management. We strive to provide the most up-to-date and objective information on accounting-related topics so our readers can make informed decisions based on factual content. All posts undergo a review process with at least one member of our Leadership Team to ensure accuracy.
This post contains trusted sources. All references are hyperlinked at the end of the article to take readers directly to the source.