Cash flow forecasting can make or break your business. Business owners need to know how much cash they have on hand for essential business expenses, whether to lean on your lines of credit, and whether they can purchase the inventory needed for the business. Slow seasons make accurate cash flow forecasting difficult, especially if the business is particularly seasonal in nature. However, whether your business sells products or provides services, there are a few best practices to lean on to help ensure accurate cash flow forecasting year round.
You have a plethora of data, so use it. You might not have exact numbers if you've experienced fast growth, but you can compare your historical trends to figure out approximate cash flow during slower seasons of the year. This method works best if you have an extended period of data to work with, such as the past five years or so. For startups and early stage businesses, lean on industry data to help project seasonal ups and downs. If you have an industry mentor or professional group, reach out for help finding and digesting the data. You may want to invest in market research from similar companies to get additional data points if industry data is limited or difficult to ascertain.
When it comes to a company’s bookkeeping practices, the business will only operate as efficiently as the processes.
Whether you have been in business for decades, or you are just getting started, money management can be an issue no.