Cash-Flow Forecasting 101

The COVID-19 pandemic has left many businesses feeling uncertain about their financial futures. Even with the Payroll Protection Program and other initiatives in place, being agile and adapting to the current situation is essential to survival. One of the best tools that you have at your disposal is cash-flow forecasting.

This aspect of budgeting estimates the amount of money (cash) that will flow into and out of your business over the course of a set period of time. Your forecast will include the revenue that you anticipate, your non-cash expenses and any costs that you will incur. You can create a cash-flow forecast for a week, a month, a quarter or a year. It’s one of the essential budgeting tools that should be in every business’s arsenal.

Creating a Forecast

Cash-flow forecasting can be complicated, as it involves both concrete data from the past and present and guesswork anticipating the future. At its core, it is designed to determine whether or not you will have enough cash to continue operating and prevent funding issues. You can create a forecast using one of two methods:

  • Direct: Direct forecasting is usually used for short-term cash flow (90 days or less) and includes estimated receipts from accounts receivable and accounts payable. Direct forecasting is often more reliable because it involves more concrete data.
  • Indirect: Indirect forecasting is best suited for long-term planning (past 90 days) and involves projected income statements and balance sheets.

When you participate in cash-flow forecasting independently or with the guidance of Rubino and Company, you should create a sales forecast showing how much you expect to sell and a profit and loss forecast that combines your income with expenses. Once you have those two documents, you can complete cash-flow forecasting.

Use your sales forecast to determine how much cash you think will come in to your business, including things like PPP loans. Subtract the costs from your profit and loss forecast. Add up all the expenses you will have each month and subtract it from money entering your business to receive the net cash flow. Will your bank account balance be increasing over this period or decreasing? Will you have enough to cover expenses? Your financial consultant at Rubino & Company can help you find the answers to these questions.

Rubino & Company Can Help Your Company with Cash-Flow Forecasting

Since 1980, Rubino & Company has provided skilled consulting services to businesses of every size throughout the country. To learn more about our business and nonprofit services, please call us today at (301) 564-3636.