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Cash flow forecasting is vital for understanding your business’s financial position. It helps you anticipate when money will come in and go out, so you can plan ahead and avoid cash crunches. Here are some straightforward tips to help you master cash flow forecasting.

10 Tips for Cash Flow Forecasting

1. Start With The Basics

Gather your financial records, like invoices, bills, and bank statements. This gives you a clear picture of your current money situation.

2. Know Your Money Patterns

Look back at past months to see when you typically make and spend money. Do you notice busy seasons or slow periods? Understanding these patterns helps you plan for the future. 

This is especially important for seasonal businesses. Understanding the money patterns of your business will help prepare your business for survival in the slow months.

3. Keep an Eye on Key Numbers

Pay attention to important numbers like how quickly you turn sales into cash (this is called your cash conversion cycle) and how long it takes customers to pay you (days sales outstanding). These numbers show how efficiently your business manages cash.

4. Think Ahead and Prepare for the Unexpected

Imagine different situations, like what would happen if sales dropped or if a big client paid late. By planning for these scenarios, you’re ready for whatever comes your way. You never want your business to be unprepared for an unexpected circumstance if you can help it.

5. Figure Out What Drives Your Cash Flow

Identify the main reasons money comes in or goes out of your business. It could be sales, inventory, or big purchases. Knowing this helps you focus on what matters most.

Be sure you don’t neglect paying attention to the small transactions. Sometimes less noticeable operations can impact your business more than you are aware of.

6. Keep Working Capital in Check

Working capital is the money you need to run your business day-to-day. Keep an eye on things like inventory levels and how quickly you pay suppliers. Managing these well keeps your cash flow healthy.

7. Make Monthly Forecasts

Update your cash flow forecast every month based on what’s happening in your business. This way, you can adjust your plans as needed. Things don’t always happen the way we expect, so it is likely that you will need to make adjustments to your plans as you go along.

8. Check Your Progress Often

Regularly compare your actual cash flow to what you forecasted. If things aren’t lining up, that’s when it’s time to figure out why and adjust your plans accordingly.

9. Talk to Your Team

Keep your employees, investors, and suppliers in the loop about your cash flow forecast. Clear communication helps everyone understand what’s going on and how they can help. 

Use tact when discussing the business’s financial position with employees. It’s important they understand and are motivated to get onboard with necessary changes, but you don’t want to cause a panic either.

10. Ask for Help When You Need It

If cash flow forecasting feels overwhelming, don’t be afraid to ask for help from a financial advisor or accountant. They can break things down and give you guidance tailored to your business. 

By following these simple tips, you can take control of your business’s cash flow and make smarter decisions for its financial health. Cash flow forecasting doesn’t have to be complicated – with a little know-how and planning, you’ll be prepared for the financial challenges that come your way. 

Trust Irongate with your accounting needs to ensure your business’s books are accurate. We aim to provide your business with exactly what it needs so you can thrive financially and not have to stress about doing your bookkeeping yourself. Contact us today.