Oct 2 2012
Best Practices for Cash Flow Forecasting
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.
Some Best Practice Suggestions:
- 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!
This is the second of three updates on the cash flow topic.
Oct 07, 2012 @ 18:32:18
Larry Selnick’s recommendations are very helpful in getting us to think about different ways and different steps to take in managing our cash flow. In small operations, we do not have the luxury to “communicate with the people who do the forecasting…”, so it is much more hands on. We find it helpful to track cash positions against the prior year since the nature of our business – non-profit – is such that we may know when it may be “OK” to be in the negative. We would also like to see more comments/observations about what the cash management implications might be for organizations that are working to put much more of their payments onto credit cards? Overall, very helpful thoughts.
Oct 08, 2012 @ 18:52:43
Frank,
Great comments on being a small business and the NFP perpective is important. You may not have the staff or other departments to deal with but you have the same issue to know what cash is on hand today and “tomorrow”.
Let me consider your question on cash flow forecasting and use of cards to maximize cash flow for a future blog. For now, it strike me you can delay a cash outlay by using the terms of the card knowing you can schedule a payment – hopefully with incurring revolving interest expenses.
Again, thanks for your post – it helps to know what readers are looking for!
Larry