How cash flow forecasting can help your business


Ewan McCowen

Ewan McCowen

Ewan McCowen CMO Float App


How can cash flow forecasting help your business? We asked Ewan McCown from Float App to share his top three benefits of cash flow forecasting.

Your bank is asking for it, your board is asking for it and your investors are asking for it, but while a regular cash flow forecast is something you know you should be doing how can it actually help your business? 

Before we run through, it is important to note that every business is unique and can get different insights from a regular cash flow forecast but here are the top 3 universal outcomes you can expect when you start forecasting.

You can plan for cash shortages and surpluses

Forecasting your future bank balance allows you to see when you may have a cash shortage that could cripple your business by stopping you from paying your staff, your creditors or yourself - and it gives you enough time to do something about it. By spotting a cash gap well in advance and taking action you could get better loan rates or be able to tighten up your payment terms to bridge the gap. As the saying goes, forewarned is forearmed.

However, the inverse can also be a problem. While having a cash surplus is great, when you’re not doing anything with it that money is gathering dust. If you can spot in advance when you’ll have excess cash in the bank you can make plans for it. Maybe you can invest in some new equipment, buy more stock, pay dividends or take on another project. Cash flow forecasting tells you exactly how much you can afford to safely invest in - or take out of - your business.

So if you want advanced notice of changes in your cash position to give you time to react appropriately, you should be forecasting your cash flow.

You can make sure you have the right amount of cash at the right time

It’s one thing to make a general prediction about your future cash flow. But it’s quite another to make accurate predictions. If you are disciplined enough to do regular cash flow forecasting you will analyse your budget vs actuals and make tweaks and adjustments. Over time, your forecasts will become more accurate which will make you more confident about your decision making.

This turns cash flow forecasting from an early warning system into a much more strategic business tool. Because if you have confidence in your predictions then you know exactly what you have to do in order to meet your goals. This is the difference between your dividends being the year-end leftovers versus having a specific cash target for distributions.

It’s the difference between thinking it’s time to take on a new employee and knowing exactly when the business can afford to take on someone new.

So if you want to increase the control you have over your business and take decisions with more confidence then regular cash flow forecasting will help you predict the future better. 

It stops you from chasing your tail

Ever found yourself tearing your hair out because you know your business is profitable but you never seem to have the cash to prove it? We often hear from businesses who find themselves going round and round in circles over this.

And the answer lies in systems and processes for cash management. Profit and loss only tells part of the story. If you don’t have rock solid control over your credit and your operating expenses then you are probably in for a very stressful ride.

A regular cash flow forecast will help here; throwing up issues around late payments or lax terms. Do you need to trim your operating expenses? Could you incentivise faster payments? By regularly forecasting your cash flow you get up close and personal with how cash actually moves through your business, helping you identify ways you could improve how you collect cash and how you pay it out.

In conclusion...

Regular cash flow forecasting is an integral part of business planning. It alerts you to changes in your finances. It improves your awareness of how and when money is moving through your business and puts you in a better position to make the right decisions at the right time.

Ewan McCowen, CMO at Float

Float is a cash flow forecasting tool that links with Xero, Quickbooks Online and FreeAgent to automatically update your cash flow forecast with actuals. You can set budgets, model scenarios and forecast your future bank balance all at the click of a button.