A businesses cash flow forecast can help businesses to predict the profitability of the business to help pay for outgoings and plan for the future. It’s a vital financial tool that can help to understand business performance and meet costs.
Whilst it can be relatively straight forward to put together, cash flow forecasting can also present some challenges for business directors in addition to deciding if you should use the direct or indirect method of cash flow forecasting.
Access to bank accounts
In order to get an accurate cash flow forecast, there needs to be full transparency among the business bank accounts. This can cause complications if there are many different business departments and locations that aren’t connected through a central hub.
Communication between key players
The financial director putting together the cash flow forecast will need information from managers, team leaders or directors. The data they collect will then be collaborated. Therefore, the process is heavily reliant on communication between these employees to ensure a timely and accurate report.
Manual processes need to take into account human error and the time it takes to collaborate all the data into one cash flow forecast. This means there will inevitably be some inaccuracies along the way. Despite this, there are plenty of systems and software companies can use to help mitigate any errors for greater accuracy.
A combination of all three challenges above can lead to inaccuracy in cash flow forecasting which can be frustrating. Unexpected costs and unpredictable influences can all interfere with your cash flow and make it difficult to manage. However, a few small solutions within the company can help to get a better degree of accuracy for proper analysis and reporting.
Company-wide buy in
In order to get the right level of communication and access to data for a more accurate cash flow forecast, it’s important to get complete company buy-in. Educating team leaders, managers and directors as to the importance of cash flow forecasting and how it can benefit their department can be a good start.
When employees understand the importance of the cash flow and you have their buy-in, it can be a lot easier to get obtain the right sort of data and get the right level of communication in order to get the job done.
Manually inputting data into a spreadsheet is likely to encounter some level of error. Therefore, accounting software and systems can help to minimize any levels of error. It can also be a great tool for intercompany reporting. Cash flow forecasting programs can help to add higher quality for reporting and analysis which can lead to greater accuracy. It can also help to make predictions for future cash flow forecasts, based on more accurate data.
Whilst there can be some challenges to cash flow forecasting, there are many businesses that understand the huge importance it can have for business continuity. Getting buy-in and communication from key players and minimizing errors can help with greater accuracy for predicting the cash flow within your business.
Author: As managing director of Cashsolv, Carl Faulds offers advice and support to overcome cash flow problems and addresses any other issues to ensure a positive future for your business.