Creating an Accurate Cash Flow Forecast in Four Simple Steps  Creating an Accurate Cash Flow Forecast in Four Simple Steps

Creating an Accurate Cash Flow Forecast in Four Simple Steps

Put simply, money is what keeps the doors open and the lights on. It is everything when it comes to paying bills and keeping employees paid. Managing your cash flow is critical for the success of your San Diego company.

Cash flow management must embrace the future as well as today. You need to be able to accurately forecast how money is going to flow in and out so that you can keep paying the bills next week, next month, and next year.

Forecasting cash flows help determine everything you do. Will you have the cash to buy supplies, pay employees, increase sales, or update your software? It’s all determined by how much cash you forecast to have on hand at a given point. Solid forecasting allows you to know what things are possible and how to manage when cash gets a bit tight.

How to Forecast Your Cash Flows

Smaller businesses can use this simple method for cash flow forecasting. The first time requires a bit of work, but it gets simpler each time you update it.

#1 Create a Sales Forecast

For any operation, a sales forecast is essential. It shows the sales you project for your business in a given time period. It starts with last years’ sales numbers and accounts for potential growth.

You can have this forecast done by an outside accountant or accounting service. However, if your operation is small and you don’t plan any major expansions, you can do the numbers yourself.

#2 Details on Cash Inflows

Your cash flow forecast details the money going out and the money coming in. With the sales forecast in hand, you can start the inflow calculations.

The forecast must include projected sales, customer payments coming in, and any other monies that are expected. If you have an online store as well as a bricks-and-mortar location, make sure you include both. If you accept international payments, be sure to include any differential due to exchange rates.

#3 Details on Cash Outflows

These are the expenses you expect to outlay in the given time period. Include everything related to the business. Don’t forget payroll, utility bills, vendor payments, office supplies, and break room snacks.

Having a dedicated business account and credit card makes it easier to account for expenses. Don’t use personal accounts or cash to avoid intermingling funds and missing major expenses. It helps with both forecasting and tax time.

#4 Finishing Your Cash Flow Forecast

The last thing you need to do to finish the cash flow forecast is to subtract the projected outflows from the projected inflows. That’s it. What you have left over is profit.

Now, this is a simple cash flow calculation based on predictable sales and expenses. For larger operations, things can get a bit more complicated. When you add more employees or more locations, your inflows and outflows get more complicated. Add in multiple exchange rates and variable sales models, complicated doesn’t even begin to describe it.

If your operation is getting more and more complex each financial quarter, it may be time to bring in an external accounting service.

Why Bring in a Professional Bookkeeper?

Bookkeepers and accountants do more than just put numbers into software and generate financial reports. They are there to help you know what your cash flows are and help you plan for the future. Here at OnTrack Financial, our goal is to help you thrive today and well into the future.

We work with numbers every day. We have specialized training in helping companies and their owners. You can do this kind of work yourself. However, is it a good use of your time if you are not a professional accountant? And, do you know how to get the most out of your financial information?

Hiring our San Diego bookkeeping and accounting service to help your company will give you confidence in your cash flows today and tomorrow.


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