There is one thing you can be sure of every cash flow forecast
– it is most likely going to need revisions!
Hey, stuff happens. For example, you may experience production delays or weather-related shipping issues. Perhaps your biggest client is delaying payment. Write a list for your own business of the contingencies and likelihood of events that can affect your cash flow. Look back on why prior forecasts were “off" and understand what went wrong. Then, you can learn more about the “why” and make necessary changes to future forecasts.
Cash Flow Best Practices
Look at cash outlays and incomes streams that affect cash-on-hand separately from capital expenditures; include borrowing expense and other investment items - just recap separately. Decide what to spend on and when is appropriate.
Review your A/R, A/P and inventory policies and processes for opportunities to improve cash on hand. For example, Can you get receivable payments made sooner by offering discounts?
Look at any customer or geographic “economic” issues that can affect your plans. If your clients are in an area that just had floods – they may not be able to pay you in a timely fashion.
Look at your forecast in 13 week intervals – keep focused on near term events and how they affect your cash position and cash needs.
Have the people who do the forecasting communicate directly with those who affect cash flow – have the forecasters talk to the sales manager or receivable supervisor to uncover underlying circumstances and known issues that will affect your cash position.
Cash is a corporate asset – use it wisely and to do so you need to plan accordingly!
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