How to Effectively Use a Cash Flow Forecast

Posted on 27th September 2017 in Business

Written by Freya Hughes

Forecasting is the best way to protect your cash flow from overspending. Sometimes we hear of people creating a forecast but not using it after that, so we’ve made this blog to show you how to use yours effectively.

Once you’ve built your cash flow forecast, using cloud-based software like Xero or QuickBooks Online (QBO), you need to make the most of the tool. The reason you need to forecast is so you can predict your incomings and outgoings. Daily syncs with Xero and QBO means that your data is always in real-time. Using this current data (and a bit of help from your historical data) means you can accurately project what will happen next. Of course, a projection is never going to be 100% law, but it’s the next best thing.

Use your forecast to its full potential

For example, if you ran a restaurant or bar, you’re going to need to know (approximately) how much stock to order in a week. The flexibility of forecasting means you can input the busy spells, and therefore predict confidently whether or not you need that extra case of Champagne. A bar owner would have each transaction logged in their Xero/QBO account, which is automatically pulled into FUTRLI.

Using this data, our platform will then create an estimated projection of how the next period’s sales will look, therefore giving the owner a confidence when it comes to ordering. Furthermore, they’ll be able to plan accordingly for things such as hiring more staff for a busy period, like Christmas or summer, as the historic data they already have shows how it’s likely to unfold. Not only this, the owner could share their dashboards with their managers, and team if they see fit, so they can rely on the fact everyone is working towards the same goals.

Inputting their key performance indicators (KPIs) allows them to view their business in smaller, more digestible portions, so they can see exactly which areas need more attention, and where they’re succeeding the most. If you need a little bit of extra guidance on KPIs, have a look at our beginner’s guide, our KPI Library and our industry-specific KPI lists.

Check in regularly

To get the most out of forecasting, you really need to be checking and updating it regularly. A surprising amount of business owners think that once a forecast is set up it doesn’t need much attention, but that isn’t the case. You operate your business daily, so you should be consulting your forecast almost as often. While you don’t need to be checking in with it literally every day, even once a month is too infrequent. As FUTRLI Co-Founder Hannah Dawson says:

“All forecasting is hypothetical – but that doesn’t mean it should be a monthly process. Yesterday I adjusted ours, and it makes you ask yourself can we spend more on X? Where did the sales get nailed? Where do we need to focus our attention? Have we got any accounts payable bills that we need to clear? FUTRLI is a hugely valuable tool for an entrepreneur to keep on top of the incomings and outgoings, and that’s why we created it.”

Checking in with your forecast weekly (at least) is best practice. We’d say you’d do well to look at it a couple of times per week, as businesses are constantly fluctuating and evolving. If you think about what your end goal was when you started your business, and if and how that’s changed since, that should give you a good idea of how your company is going to change. Not only do transactions alter things, but your focus might too. Keep on checking as frequently as you can.

Real world examples of how our community use forecasting effectively

Every one of the businesses we work with use forecasting for a multitude of reasons. From predicting and navigating growth to simply ensuring they’re on the right track, businesses of all different shapes and sizes rely on projections to rest assured they’re doing the right thing. See what the following business owners say about how they use their forecasts:

Digital services: Raw Pixel

Examples of RawPixel's work

Bookkeeper Louise Churchill tells us that having such flexibility helps their business because they operate globally. With an office in the UK and one in Thailand, she enjoys using it the way she’s set it up:

“I really like that when you’re forecasting you can add in your own line and put in your own formulas and calculations. The majority of our incomings and outgoings are in US dollars, all of our prices and targets, but obviously we’re a UK company so all of my financial records are different.

When I’m reporting figures back to the rest of the managers, I need to show them in dollars. Pound sterling doesn’t mean anything to them. So what’s great is I can build all the forecasts and put them into pounds (as they should be!) but then I can add in extra lines of my own calculations based on the exchange rate at the time.”

Read the Raw Pixel case study

Creative, digital marketing: Koozai

The Koozai Team

Owner Ben Norman says that he’s able check in at a moment’s notice to see exactly where the business stands. Keeping his team on the same page, he uses his forecast to run through the business’ performance every month:

“The way that we’ve set up our forecast, it just has our key metrics and I can literally open it up and see where I am and trust that it’s true. FUTRLI also forms the backbone of our monthly reviews.”

Read the Koozai case study

Manufacturing: Skunkworks Surf Co

Office manager and bookkeeper, Samantha Quinn, used to have a hard time working out the business’ position as their income can be delayed. Payment terms are easy to input into a forecast, so the whole company are aware of when more sales need to be made, or invoices need chasing:

“As a manufacturing company, a lot of costs are incurred upfront. This often means that it takes some time before we are reimbursed for these costs by the end customer. Because of this, we’ve realised it is important that our expansion is at a controlled and sustainable rate. Using FUTRLI, we create short-term forecasts which has helped to ensure that expansion plans are within our cash parameters and helped us to manage our working capital.”

Read the Skunkworks case study

For accountants too, forecasting raises efficiency in day-to-day tasks. They’ll use a forecast for your finances, ensuring you’re on the right track. The fact they’re able to use this kind of tool for your business means they’re providing better services than most of their peers. Many traditional accountants still manually update accounts, and focus on things like compliance. Automation means that those in the know are using tech to conduct these time-consuming tasks.

Emma Fox of management accounting/bookkeeping firm, Fresh Financials, told us that thanks to automation she’s able to spend a lot more time discussing her clients’ needs and desires. “We’ll sit and have a chat, discuss things and look at the data together. It’s much more fun!” she tells us. Emma’s been able to reduce her time spent on forecasting too,

“I would say [forecasting is] probably a case of a couple of hours work maximum, as opposed to a whole day’s work.”

Her firm’s approach is to intertwine management accountant-level services with bookkeeping, so their clients are getting the most out of them as possible. See what else Emma has to say in the case study here.

Of course every business is unique, and therefore so are forecasts. To ensure you’re using yours to its optimum, you have to be on the ball with it and looking at your results more than once a week. Your business changes day to day, even if it is just minor changes, so make sure you’re agile enough as the owner to roll with it.

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