Cash Flow

Using Cash Flow Forecasts to Provide for Your Business's Operational Needs

Using Cash Flow Forecasts to Provide for Your Business's Operational Needs

Say “cash flow” to a business owner or manager and thoughts often turn to getting cash in the door before the next checks go out for labor, material and overhead. While operational needs are often at the forefront of demands on cash flow, funding of long-term improvement, innovation and expansion are necessary to ensure business health.  Anticipating challenges and issues with the discipline of cash flow forecasting can help with capital planning and making better financing and investment decisions, while ensuring you can meet your operational needs.

Using cash flow forecasting to link short and long-term business objectives is not easy.  The struggle to project operational basics such as inventory, receivables, payables and the cash requirements necessary to support them is a familiar issue for many business managers.  According to SunTrust research, 43 percent of mid-sized businesses don’t regularly try to forecast cash flow1.

Following cash flow forecasting best practices helps to create accurate cash flow forecasting to support your business plans.

1) Get Real

Optimism has its place in a growing business, but not in cash flow forecasting.  The first step is to create a well-balanced and realistic forecast.  While accurate predictions can be tough, the journey begins with using historical data and thoughtful assumptions of future business and sales trends.  Forecasts should be as detailed as possible, including all business units and using monthly or even weekly projections.  Don't rely on averages that can disguise cash flow reality as some time periods require large amounts of cash outlays for inventory or production capacity and others tip in the opposite direction with strong revenue and little need for cash outlays. Without taking away from a strong baseline forecast, you can add optimistic and pessimistic scenarios to plan for the variation that often comes with a growing business.

With a forecast in hand, your next step is to keep your projections accurate and help make future decisions that will improve your company's cash and revenue flow.

2) Maintain ongoing forecast accuracy

Using accounting software to develop detailed cash forecasts can provide benefits such as:

  • Flexibility to manipulate the data with "what if" scenarios quickly and accurately, to identify options and alternatives to meet improving or declining sales levels.
  • Ability to integrate actual banking data into your forecast, improving accuracy and keeping figures up to date.  Many banks offer online information reporting and transaction products, including automatic information updates delivered to your desktop via encrypted files or secure FTP or internet downloads. 
  • Access to necessary functions to statistically compare your forecast to actual budgets, then allowing for adjustments and manipulation of forecasting methodology.

3) Add control over cash elements

Consider the following opportunities to smooth out the cash flow peaks and valleys your forecast identifies:

  • Accelerated invoicing starts the payment process moving earlier. Point of service invoicing, electronic email/messaged invoices, sales contract triggered invoices and online bill presentment are all ways to get the invoice to the customer faster in order to start the payment cycle faster.
  • Remote deposits provide more immediate access to your receivables through electronically deposited checks, money orders or cashier's checks that reduce time and travel expenses, allow for multiple daily deposits and add the flexibility and convenience of after-hours deposits.
  • Automated payments make the AP function much more efficient and predictable by lowering invoice processing costs and reducing expense posting cycle times.

4) Position your company for the best financing opportunities

Advanced cash planning positions your company for better rates and opportunity for your future needs. Forecasting expectations of when the business will need cash in the future, then exploring financing options 12 to 18 months in advance will help you secure type of financing and investor quality you require.

5) Enlist external input

Your company’s trusted advisors – accountants, bankers, industry experts or other financial specialists - know your business and have the experience and knowledge to review your projections and provide their input. They are often able to act like an independent analyst or consultant with objective opinions and suggestions. They should also be able to help you identify and use industry and comparable company benchmarks to measure your performance and guide your actions. Leverage your circle of experts' experience and financial acumen to make your forecast all the more accurate and to identify additional areas of improvement not included in your original plans.

Prepare your business for the future with cash flow forecasting

The lifeblood of any business is cash.  Creating reasonable and accurate cash flow forecasts that offer your business the opportunity to identify potential pitfalls - and windfalls - and take advantage of them.  Using the roadmap designated through your cash flow forecast, you can put processes in place that will better manage daily operations, as well as position your company for longer-term business success.

Set up time with your SunTrust Relationship Manager to understand how SunTrust’s financial solutions can help you manage your cash flow and improve cash flow forecasting for your business.   You can learn more about cash flow management at SunTrust’s Resource Center.

This content does not constitute legal, tax, accounting, financial or investment advice. You are encouraged to consult with competent legal, tax, accounting, financial or investment professionals based on your specific circumstances. We do not make any warranties as to accuracy or completeness of this information, do not endorse any third-party companies, products, or services described here, and take no liability for your use of this information.