Four ways to refine your cash flow forecast

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Run a business or non-profit organization for a while and the importance of cash flow becomes very clear. Being able to accurately forecast cash flow is essential. Here are four ways to refine your approach to cash flow:

This content is provided by Cordia Partners.

Run a business or non-profit organization for a while and the importance of cash flow becomes very clear. When payroll is due, bills pile up and funds are not available, blood pressure tends to rise. For this reason, being able to accurately forecast cash flow is essential. Here are four ways to refine your approach to cash flow:

  1. Know when you are peaking. Many organizations are cyclical and their cash flow needs vary by month or season. Problems can arise when an annual budget does not reflect the expected revenues from the products or services sold. For seasonal operations, using a single approach can disrupt budgets, sometimes significantly. To forecast and plan for your organization’s cash flow needs, track your sales / income peaks over as long a period of time as possible.
  2. Engage in rigorous accounting. Effective cash flow management requires anticipating and capturing every expense and every incoming payment, as well as, where possible, the exact timing of each payee and payee. But figuring out the exact costs and expenses for each day of the week can be difficult. Organizations can face a range of additional costs, overruns and late payments. While taking an inventory of all possible expenses can be tedious and time consuming, it can help avoid problems down the road.
  3. Keep an eye out for additional funding sources. As your organization grows, make sure you get a dedicated line of credit from a bank to meet cash flow needs. The interest rates on these lines of credit, however, can be high compared to other types of loans. Thus, lines of credit are typically used to cover only short-term operational costs, such as payroll and supplies. Federally funded loans have been widely available during the COVID-19 pandemic and may still be available to you. Consider these options and others that are appropriate for the size and needs of your organization.
  4. Bill diligently, run lighter. For many organizations, the biggest hurdle to cash flow is slow collections. Make sure you bill on time and provide easy, convenient ways for customers to pay (like online). For new customers, perform a thorough credit check to avoid late payments and bad debts. Another common obstacle is the mismanagement of resources. Misguided investments and oversized offices are just a few examples of poorly managed expenses and overheads that can negatively affect cash flow.

As you refine your approach to accurately forecast cash flow, you should also prepare your annual budget forecast at the end of each year. If you need assistance, contact Cordia at any time. Our senior accountant and our FP&A experts are at your disposal to position you on the path to success. Visit www.cordiapartners.com to learn more about our financial planning, outsourced accounting and technology consulting services.


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