Forecasting Cash Flow

Cash flow is the pulse of your business. One of our tips last week for keeping cash flow pumping was to forecast. Just like checking the weather before a trip, forecasting your cash flow helps you prepare for what’s ahead, not just react to what’s happening now.

Cash flow forecasting is the process of estimating how much money will flow in and out of your business over a future period — typically weeks or months. It helps you predict whether you’ll have enough cash to cover your obligations or if a shortfall might be on the horizon.

Imagine opening a new bakery. You might think that the hardest part would be perfecting your sourdough recipe. It turns out, it would actually be predicting when your bills clash with slow sales weeks. You might splurge on new packaging one month, not realising that a major invoice is due the same week all of your regulars are on vacation. Forecasting cash flow would have helped avoid this issue.

Why Forecasting Matters

1. Avoiding Cash Crunches: Even successful businesses can hit turbulence if they run out of cash. A forecast helps you spot potential shortfalls in advance, giving you time to act — whether that means adjusting expenses or arranging financing.

2. Planning with Confidence: With clear visibility into future cash positions, you can make growth decisions — like hiring or investing — with greater certainty, knowing the financial weather is in your favor.

3. Better Day-to-Day Decisions: From managing payment terms to deciding when to restock inventory, cash flow forecasting informs the smaller choices that keep your business steady and resilient.

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How to Build a Simple Forecast

Start with expected cash inflows (like customer payments, loans, or investments), then subtract your expected outflows (rent, payroll, supplier payments, etc.). Update this regularly to reflect actual results and new information — much like updating a weather forecast as conditions change.

Final Thoughts

You don’t need to predict every detail of the future, but having a clear picture of where your cash is headed can mean the difference between riding out a storm and being caught off guard. Keep your forecast up to date, stay flexible, and your business will be better equipped for whatever comes next. However, forecasting cash flow can be difficult. Our bookkeeping, tax prep, and payroll services will help lighten your load.