Cash Flow Forecasting

How Can I Do Cash Flow Forecasting?

Monitoring cashflow for a business has never been more important, particularly due to the impact of Coronavirus.

There are softwares such as Fluidly and Float that link with Xero and can help to produce cash flow forecasts. The biggest issue that we come across when asked to do cash flow forecasts is Xero not being up to date. If Xero is not up to date then there isn’t data there to pull on to do the forecast. It’s like trying to bake a cake without the main ingredients, it just won’t work.

Utilising bank rules and data extraction software such as ReceiptBank should make the process of getting Xero up to date quickly and efficiently a lot easier. Once Xero is reconciled up to date we have real time data to draw upon. By using actual data to analyse cash flow trends you can better understand your customers, suppliers and business performance.

You can do short term or long term cash flow forecasts.

Short Term Cash Flow – Typically the day-by-day, week-by-week forecast using what you currently know about money due to come in, money due to go out and what’s in your bank. These are great for supporting businesses that have immediate uncertainty over their cash flow. Our clients have free access to 90 day cash flow forecasting using Fluidly which can help with short term cash flow.

Long Term Cash Flow – This method of cash flow forecasting uses the profit and loss statement and balance sheet as a basis for forecasting. Longer term forecasts can incorporate such things as economic peaks and troughs, inflation etc. Typically for businesses who require longer planning and more complexity.

Cash flow forecasts can also be used with scenarios, for example if you have staff on furlough can you actually afford to bring them back in? Cash flow forecasts and up to date financials are fast becoming a need to have rather than a nice to have as business owners look to track business performance and to see the impact of their decisions.