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Cash Flow Planning, Management & Forecasting

Cash is the lifeblood of any business. Although a company can survive for a short while without cash, an ongoing operating deficit will ultimately take it under. Thorough cash flow analysis and reliable forecasting will alert the business owner of potential problems in advance. For those with neither the ability nor inclination to compile the data and create the projection, cash flow forecasting is an important enough task to warrant outsourcing a consultant with the right experience.

Simply put, cash flow forecasting consists of taking the business’s cash on hand, adding the anticipated cash receipts and deducting projected cash disbursements in chronological order over a fixed period of time. The result is a running balance that gives management the projected net cash availability on a daily, weekly or monthly basis, depending upon the frequency of the forecasting needs of the company.  

When thoroughly researched and accurately prepared, cash flow forecasting will let management plan ahead for equipment purchases, launching an advertising campaign or schedule other major outlays based upon the projected availability of funds at a given point in time. Similarly, an reliable forecast will alert management in advance as to when potential cash deficits will occur.

Frequency of preparing cash flow forecasts varies with each situation. A new or struggling business may need to revise its cash flow forecast on a daily basis, whereas for an established, more stable operation, updating the forecast weekly or even monthly may be sufficient. For complex situations, or where management is incapable of preparing an reliable forecast, outsourcing and retaining the services of a controller or CFO consultant is highly recommended. In addition to carefully analyzing the client’s operation and preparing the forecast, the cash flow consultant will recommend the frequency with which future cash flow projections should be prepared, as well as advice on how to improve cash.  

Importance of Cash Flow Forecasting

A company may be profitable from an accounting standpoint, but an unexpected major cash shortage can put them out of business. An accurate cash flow forecast will alert management well in advance of potential cash shortfalls, giving them time to initiate corrective actions or arrange for an infusion of capital from personal resources, outside investors or a lending institution. A cash flow consultant’s forecast will also let management know when funds are expected to be available for major outlays such as capital improvements inventory acquisitions or new equipment.

Reliable, regularly scheduled cash flow projections are an ongoing requirement for any business to succeed. Poor cash flow is among the top causes of business failures. Sales figures may be excellent, but if money due not collected in a timely manner, the lack of cash when it is needed to meet expenses can ultimately cause the company to go under. An accurate cash flow forecast prepared by a qualified consultant will identify slow-paying customers, along with disclosing other deficiencies in the company’s credit or collection policies.  

Find Out How a Fractional Accounting Consultant Can Help Your Business

Contact the outsourcing experts at Pro Back Office to learn more about the importance and value of reliable, regularly scheduled cash flow forecasts. Serving businesses throughout Southern California and Arizona from its offices in San Diego and Phoenix, PBO will locate and arrange an experienced cash flow consultant with training and experience that matches your unique needs, fits your budget and can help take your business to the next level.

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