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March 2013

By: Sullivan Alexander, MBA, CGMA, CPA.CITP, Conture—Director, Management Advisory

Accelerating Small Business Cash Flow Forecasting
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If you struggle with getting a handle on your cash flow management, rest assured you are not the only one; even larger companies have similar challenges. Cash flow is the lifeblood of small business, especially for small medium businesses (SMB), and retailers with a relatively larger amount of current assets tied up in inventory and accounts receivable compared to manufacturing companies.

Like any important asset, cash flow is a resource, and is critical to business survival. Without it, a business will likely underperform or not survive. In light of this, it should be planned and managed; otherwise it will simply fly out the windows and doors.

In simple terms, yes it is about inflows and outflows of cash; however it is important to expand this view to see the value, and gain a sense of the opportunities. Cash flow is not just about finances; it is about your business planning, operations, finance & accounting and information technology use in the business. These areas are all inter-related, and should be integrated to be effective. In order to take their business to the next level, owners need to be thinking to some degree about these connections, because cash flow is fuel for growth.

Getting a Handle on Cash Flow Requires

Knowing the business strategy & plan, goals, marketing plan, operating plan, and understanding the financial statements to be able to see patterns and behavior, relative to your financial statement line items are all the key pieces. This is one reason having real-time accounting records you can trust to capture the information is so important to support decision making. This can make all the difference from being in a cash flow crisis, to preventing one.

In a nutshell, once you have an understanding of patterns and behaviors, you can use insights from up-to-minute accounting records to make assumptions in your cash flow forecast. After that, the process is much more of a mechanical exercise. Having the right financial expertise and tools helps immensely. All of this is now in reach of SMBs.

Cash flow projections should be integrated with real-time accounting records including GL, AR, AP, financial statements, and deliver weekly or monthly cash flow calendars for ease of viewing, to allow you to make decisions with confidence!

When you have real-time accounting records integrated with your cash forecasts, the process becomes more enjoyable, and less of a burden. This is because Information technology does the heavy lifting for you, and your accountant/business advisor helps with interpretation and provides advice to improve your business performance.

Cash Flow Forecast – A Simplified How To

The following partial list of tips should be considered when doing your cash flow forecasts:

1. Review business, marketing, & operating plans and goals;
2. Analyze historical records & information based on financials B/S, I/S, AR, & AP;
3. Based on the above, and other information, develop assumptions for estimates;
4. Prepare sales forecast, units, service levels, pricing, inflation, & other;
5. Develop cost of sales, operating expenses, & G&A forecasts, loan repayments etc;
6. Prepare cash flow forecast (monthly to 1 YR), cash receipts, cash disbursement, and ending cash position;
7. Establish multiple scenarios (best, realistic and worst case);
8. Based on cash flow projections interpret results, and make decisions to meet goals, and;
9. Monitor forecasts and make adjustments as needed.
In summary, the above snapshot is intended to provide a brief overview of some key points to keep top of mind as you think about your business cash flow and opportunities available.

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