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Cash Flow Forecasting During Times of Crisis

During times of crisis, businesses need to consider the health of their finances now more than ever. Small businesses especially need to ensure they have tight control over their cash flow. In order to understand where your business stands, especially during times of crisis, you should have a cash flow forecast that details where you are profitable, where you need to save in order to prepare for uncertain circumstances. 

Cash flow forecasting is something that needs to be done on a regular basis, especially during these times. These forecasts help your company better prepare for various potential outcomes that may occur. 

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During Uncertain Times You Need Cash Flow Forecasting

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:

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Timeliness: Your Work in Progress (WIP) Schedule is Incorrectly Forecasting your Cash Flow

A Work In Progress (WIP) report consists of an accounting schedule that’s a portion of a company’s entire balance sheet. In best practices, each accounting period has a calculated work in progress report that complies with GAAP principles.  These reports are required on projects where the Percentage of Completion (POC) accounting method is used. The WIP report typically consists of current period and project-to-date financial metrics that explain each contract the company is working on, however, the format does change from company to company.

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Executing Your Plan

You have a plan that’s specific to your business. Now what? How do you execute on this big picture plan? Start by using your budget and forecast to run your business by the numbers. Running your business by the numbers also means tracking Key Performance Indicators (KPI’s) and establishing a regular cadence for meetings to be able to execute your plan and measure your results.

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Importance of Sales Forecasting

Financial Risk Assessment

The single most important element in the forecasting process is the Sales Forecast.  Generally, Sales drives everything else; it is what determines the expense spending plan.  If the company is a manufacturing company, the sales forecast will drive the production plan.

There are several different ways to approach Sales Forecasting.  Typically it starts with the Sales Department figuring out how much product they can sell in the following year.  Sales people are naturally optimistic by nature, usually overestimating achievable sales.  There are several factors that can impact the forecast:

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