Forecasting Your Business Cash Flow

To keep the lights on, small business owners should know how important it is that a company generates a positive cash flow in excess of invested cash. If not, you may find yourself closing up shop sooner than you think.

A forecasting statement is a great place to start. A forecasting statement measures the company’s ability to generate cash flow. It gives you a way to measure any success or failures against your target. This statement will allow you to have a second look at your financial and management decisions and make any necessary changes in your future planning to keep your company on track. However, forecasting is not error-free. Below are 4 suggestions that may help your business avoid some of the cash flow forecast errors.

Business income. This income is the amount received from the business operations. When there are forecast projection errors, it can have a huge impact on cash flow. Your financial team will build projections using basic things such as:

• Pricing
• Products
• Volume

Using these basics will provide a more secure idea of the performance operation of the company while along the way, raising any relevant questions.

Payable and receivable changes. Receivable and payable accounts should be set at ideal levels and then forecasted according to your financial strategy.

Finance and investment cash flow reporting. Predicting these cash flows can be quite difficult and requires a high level of expertise. The most reliable way to handle this is to set policies in the sections of acquisition and disposal of your long term assets, as well as other investments that are not included in the cash equivalents nor in any activities that would result in changes to borrowing or equity. Be sure to follow through with your strategic plan.

Tax liabilities. There are always changes in the tax codes. Hiring a reliable and experienced CPA firm will ensure that all of your tax matters are up to date before they have a chance to become an issue.

At Summit CPA we offer multiple resources that will help get your business on the right track. For more tips contact our office at (866) 497-9761 to schedule an appointment with our advisors.