Top tips for cashflow forecasting

Weekly cashflow forecasting is one of the most important housekeeping tasks in your business. Many a business has failed because of poor cashflow management.

Usually a lack of cash is indicative of problems with profitability but sometimes you only get to realise that when big lumpy bills come in and there is not enough cash to pay them.

Bigger businesses do a cashflow forecast at least weekly and I think SMEs should too. It doesn’t take long once you know how to do it. Here are some tips:

  • Make sure you estimate cashflow weekly rather than monthly. Too much can happen in a month, weekly forecasts are more granular and accurate.
  • Don’t try to forecast too far into the future for your operational cashflow, anything past 13 weeks is more strategy than operations and should be done separately. 13 weeks usually fits on one page so you can see it all at once.
  • A lot of people make the mistake of adding lots of small expenses but only including one line for income. Turn that upside down and put more emphasis on receipts and group the easier to estimate small fixed expenses into less lines. Again try to fit it all on one page.
  • Go through your debtors one by one and split out at least 20 of the biggest debtors and put the estimated amounts and receipt date for each invoice for these debtors in your forecast.
  • Use your sales pipeline to estimate receipts for the smaller debtors (if you have a lot of debtors). Also use pipeline to calculate the weeks past your known sales – budget isn’t good enough because it will always predict exactly the budget, that’s not very useful.

So, in essence, make sure you focus on the large and the variable and not the small and fixed. Then, each week, remove the first column each week and add a new one to the end and do it again.

Make sure you adjust your assumptions over time based on actual results. Good cashflow forecasting get more accurate over time, the most important thing to do, like most things in life, is to start.

Thomas Taylor, Outsourced CFO,