Top 5 Tips for Short term Cash Flow Forecasting

Short-term cash flow forecasting is essential for managing the day-to-day financial operations of a business.


How can you as a financial advisor or business owner help ensure your company is moving forward. Short-term cash flow forecasting is key to micromanaging your company’s finances and planning for a stronger, more agile business.

By ensuring your short-term cash flow forecasting is as accurate as possible will help you and your financial team plan for the unexpected. Smart, regular forecasting can allow you to manage the business operational costs more fluidly, keep a tight reign on spending and allow for more accurate communication around your business especially when costs outweigh income and sales targets need to be raised.

Better planning and clear communication between finance and other departments can make the difference between insolvency or growth. If a finance team can not easily predict or communicate issues.

Here are 5 top tips for short-term forecasting success:


1. Reconcile your accounts


Forecasting without accurate, up-to-date records can give you a misleading healthy cash position.

Reconcile your accounting software against your bank statements regularly to avoid errors and misleading opening cash balance.

Reconciling the accounting software with the bank statement is a crucial step in maintaining accurate financial records. If you don’t reconcile, you could be making mistakes like posting transactions twice or not recording transactions at all. These mistakes can lead to misleading cash positions where you think you have more money than you do, but in reality, it’s just an error on your account.

2. Check accessible cash value

If you are in the business of running a company, one of your top priorities is to make sure that you have enough cash on hand to cover all your expenses. The easiest way to do this is to check your balance sheet and see the accessible cash value you have available. Inaccessible funds or trapped cash like cash in stores tills or collateral for imports need to be separated so it doesn’t get counted. Otherwise, you might find yourself far too short or worst case be in a situation where you have insufficient funds for normal operations.

3. Talk to your team

Forecasting in isolation from the rest of your business can be a disaster. Operational teams need to be consulted to sure their stream is up-to-date or whether they have unanticipated plans for the coming period. Sales teams for example have ever-changing goal posts, without consultation the inflow and outflow of their departments could be seriously overlooked.

4. Work out the difference

Analyze your cash flow forecast for variances by comparing your historic transactional records to previous forecasts. Look at where these variances came from and understand whether they are likely to be permanent or possibly a seasonal trend. Done weekly this allows you to better predict the changes or opportunities and produce more accurate cash flow forecasts

5. Prioritize business-critical payments

If liquidity is known to be an issue in your company ensure you know who to prioritize paying. Understand which supplier is business-critical and who has flexible payment terms. It’s also essential to plot all those one-off payments, these could be annual renewals for insurance or software.

This is where a cash reserve also becomes vital as you can plan to ensure within months with higher expenses you have savings to cover those payments.