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How to make operating cash flow decisions on fact not fear

Your five year plan went up in the air when we went into lockdown; there’s a ‘new normal’ in town and we’re having to embrace it in everything we do. Whether it’s providing food for our families, adjusting to working from home (or keeping ourselves safe if we can’t), and video calls with unexpected Zoom bombers, this has become our reality.

But our new reality keeps changing and is ever evolving, which is why you and your cash flow forecast should be too.

Instead of pressing pause, you can be proactive in planning ahead in this ever moving situation. It’s difficult, but you don’t have to be a bystander. This is an opportunity to cement solid foundations for your business going forward, letting your cash flow forecast drive your decision making.

Red and white goal posts with net on a beach in front of ocean

No goal posts, no problem – the flexible forecast

Let’s be honest, we all had an internal timeline of how long we thought this situation would last for, right? Two weeks or two months? In truth, we still don’t know.

You may initially have been forecasting based on these assumptions, but ever unfolding government advice (and thankfully now business support packages) keeps moving these goal posts.

Although it’s impossible to know with absolute certainty at the moment because there is no tangible end date, there are steps you can take now to positively impact your cash flow.

Don’t make your decisions in the dark

Cash flow forecasting isn’t something you try once and leave to gather dust. It’s an undercurrent to all business activity and the driving force behind making important cash decisions. If there’s ever been a time for cash flow forecasting to be front and centre, it’s right now.

Not only that, but continuous, reactive cash flow forecasting will be crucial for businesses to survive and flourish throughout and after the pandemic is over.

We can only do that with our eyes wide open.

So – how to base your current business decisions on fact, not fear?

White brick wall with lamp shining on the words fact not fear

Keep remodelling your forecast – be reactive

We’ve had to become comfortable with a constantly moving landscape, and being flexible with your forecasting will help keep your cash flow projections as accurate as possible.

The more you forecast, the less chance there is for surprises. Forecast more regularly and keep adjusting your cash flow to reflect what’s actually going on with your cash. The more you tell Float, the more accurate your forecast will be.

Create more in-depth budgets to keep a closer eye on smaller cash movements – these can actually have a significant impact on your cash position.

Let your forecast drive your decisions

Take the emotion out of your decision making and let your cash flow forecast inform your actions.

Build your forecast around things you know, rather than things you think might happen. Actively use your forecast to make sure you know how much you need to borrow when you’re applying for government support packages like Bounce Back Loans or funding from your bank. Being able to present a comprehensive cash flow forecast is vital to securing the funding you might be eligible for.

For businesses who can apply for grants and support packages, use the ‘expected dates’ feature in Float to plan when those payments will enter your cash flow. Create goals or timelines that can be tweaked and adjusted as needed that reflect real-time transactions and when they will actually happen.

GIF showing operating cash flow graph

Build multiple cash flow scenarios – use them as the basis to create solid action plans

Create cash flow forecast comparisons for the present, plus two or three alternatives that include a worst case scenario and an optimistic forecast including any loans and funding that could positively shape your cash flow.

Extend your forecast for 3/6/9 months to plan for a longer term ‘recovery’ plan. Build multiple scenarios to strengthen your step by step business revival to help you work towards a healthy, sustainable cash position.

By creating scenario comparisons you can clearly understand the impact they will have on your future cash flow. You can confidently create action plans and carry out risk assessments based on strategic forecasting rather than just hoping you’re making the right choices for your business going forward.

Always trust your numbers – they really don’t lie

Are you making important business decisions based on what could happen if a series of payments do or don’t happen, or what you should make happen to ensure the sustainability of your business? Be careful about the assumptions you make when planning your cash flows. When dealing with uncertainty, our brains can get clouded by emotions.

Float pulls in data directly from your accounting software, which means that keeping your finances and accounts up-to-date is key to building an accurate cash flow forecast.

Strategic monitoring of your business’s finances, using a detailed cash flow forecast, will allow you to make the right choices moving forward in your business.

Remember – fortune favours the brave (and having a concrete cash flow forecast won’t hurt either)…

Why leave it there?

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