Why Cash Flow Forecasting Is So Important Right Now
The financial struggle is real right now for companies and individuals alike. Business owners are scrambling to do it all for themselves and their clients, which is why cash flow forecasting has reached an all-time high level of importance. Here’s how and when to evaluate a company’s future financial standing during these uncertain times.
It’s easy to set qualitative benchmarks, but unless you’re setting quantitative goals, you’re missing the mark. Managing liquidity ensures there’s is adequate cash flow to not only meet business obligations, but also avoid funding issues down the road, ideally for the next six to 12 months and up to three years for long-term planning.
Find a method
The difference between direct and indirect forecasting essentially boils down to whether for the short term or long. While it may be hard to see beyond the immediate working capital fund, growth strategies and capital projects shouldn’t be far off the radar. A combination of upcoming accounts receivable and payable, along with adjusted various income statements and balance derivations, will help to set the course.
Establishing lines of communication can lead to one version of the truth and squash inaccurate forecasting. That starts with drawing a line between cash flow and revenue to indicate the financial health of a company. Identifying where cash is coming in and out of can reveal capacity to produce products or services for which you can then publish, monitor, and assess results based on different scenarios.
Manage the process
It’s one thing to set up a process and yet another entirely to make sure it is followed through. By ensuring all members of your team are on board, not just those in finance or leadership positions, you ensure the data roadmap is followed from forecasting to buy-in, while managing inventory along the way.