Cash Flow Forecasting isn’t just for the big boys and girls of business – it’s just as relevant for the SMEs of this world as it is for Startups. Cash flow – put simply – is what comes into your business and what leaves it. If more goes out than comes in then you will eventually run out of cash – and that means the end of your business! All business owners should take a strong interest in looking ahead to forecast what their cash flow is likely to do over the coming days, weeks and months.
I personally use the analogy of the human body – the ‘heart’ being your cash flow. Let me explain: if you get ill or break a leg, it’s comparable to a period of not making a profit – in both cases it’s unpleasant, but both can recover and get better again. However, your heart stopping will result in death just the same in business if you run out of cash although your business ‘death’ may be slower and much more painful! This is why Cash flow forecasting should be your number one business management activity – look after the heartbeat of your business!
So, onto the ‘how’: this can be done in one of three ways – either by building your own spreadsheet, buying a software tool to download onto your PC, or signing up to a cloud-based forecasting tool.
- Spreadsheets work if you’re well-acquainted with them; you can identify and eliminate the inevitable errors and have the time to build a simple forecast – it will be time consuming to build, probably have limited features but comes with no financial cost.
- Purchasing cash flow forecasting software for your PC is an option – pay in full, up-front. However, consider that technology, constantly developing and changing, will ensure you are occasionally upgrading. This is likely to cost you more.
- Many businesses, aware of the future-facing technological shift in business tools, look towards the cloud. This would suit your business if you want something more than just a basic spreadsheet solution. Taking less time to get going and maintain, bursting with features, free upgrades and tend to cost as little as £10/month.
The frequency of your forecast depends on how close you’re sailing to the wind – if cash is really tight, daily cash flow forecasting is best for you. This allows you keep a close eye on cash going in and out. If you need to watch it a little less closely, weekly forecasting is better. If your cash position is comfortable and doesn’t venture near the ‘death zone’ then monthly forecasting is for you.
The message here is that whether you use your own spreadsheet, buy one or sign up to a cloud-based product, the important thing is that you do run a Cash Flow Forecast for your business – cash flow forecasting is not an option, to be forewarned is to be forearmed…
Alan McCafferty is the Founder & Chief Executive of Simply Cashflow, a cloud-based Cash Flow Forecasting Business Management Tool at http://www.simplycashflow.com It simultaneously forecasts in all three, Daily/Weekly/Monthly, formats, contains a ‘What-if’ facility for scenario analysis – i.e. ‘what-if’ this happens or that doesn’t, what will happen to our cash position, forecasts up to 5 years, numerous predefined reports and graphs and starts at £10/month – contract-free.