Cash flow forecasting: Dark clouds or clear skies ahead?

February 25, 2013 - Tags: Managing Planning

As a small business owner, one of your biggest challenges may be managing your cash flow. Do you have the working capital required to run your business on a day-to-day basis? Cash flow forecasting may help you determine your needs more accurately; using this management tool could keep you from insolvency.

Cash flow is the money going in and out of your business via sales and expenses. Manage your salaries, rent, taxes and payments to suppliers by anticipating this movement. Simply knowing that you have receivables coming in is not enough to keep your operations going. If you see a shortfall in your forecast, you can prepare in other ways.

Get help with your forecasting from:

  • A professional financial forecasting consultant
  • Your accountant or bookkeeper
  • Accounting software
  • Spreadsheets or templates available online

Use a forecasting tool or even a simple spreadsheet to record your balance and any cash you expect to pay out (outflow) and get in (inflow) – you'll see where you stand at a glance. You can base your expected operating expenses on the actual expenses that you incurred over the last twelve months to prepare for potential problems and make adjustments. Review your cash flow forecast on a regular basis and err on the side of caution when projecting sales; over-optimism can lead to an inaccurate forecast.

Look over recent monthly sales to analyze any potential upcoming risks:

  • Can you expect the same level of activity?
  • Is anything happening in the market that could affect your sales?
  • Have you lost any customers?
  • Ask a lot of “what if” questions.

Revenue should come from a mix of customers so that you don't depend on just one source of income. Be firm to ensure they pay their bills on time; this will help you to forecast your cash flow.

Cash flow forecasting can also be an effective tool in other ways, helping you:

  • Decide when to launch something new; your spreadsheet should allow you to see how the change will affect your finances
  • Identify slow times
  • Show bankers you are credible and that you're doing your homework

Eliminate some of the guesswork involved in keeping enough working capital on hand. Use cash flow forecasting to stay on track, and check out our section on Budgeting and forecasting for more tips.


Posted by on March 20, 2013
We're happy you enjoyed this blog post. Our posts usually have a variety of sources. You can find similar resources online and some can be found on our Budgeting and forecasting page. For more information on starting or growing a business in Canada, contact the Canada Business service centre in your province or territory or call toll free 1-888-576-4444 (TTY 1-800-457-8466).
Posted by johnny on March 15, 2013
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