United Financial Statements for Cash Flow Forecasting

While businesses have adjusted to operating during a global pandemic there is still so much uncertainty. Is now the time to move forward with that planned investment? What about workforce considerations? What decisions need to be made about discretionary expenses? Dynamic market conditions may not be anything new but navigating the current business environment and its unprecedented unpredictability has shined a spotlight on just how critical cash flow forecasting is to an organization. Cash is often the difference between staying in business… Or not. It’s the cash and liquid assets available to you that allow you to pay your bills, plus make the necessary investments to drive growth. With cash flow forecasting your organization can build a plan to ensure you have the liquid assets needed to maintain business operations. Forecasting balance sheet and cash flow enables your leadership team to make the most informed decisions and help your organization “future proof” itself to survive as new market variables will inevitably occur.

Here are three best practices to improve your cash flow forecasting:

#1. Start Your Cash Flow Planning and Forecasting at the Top

‍Sales and revenue are the lifeblood of any organization, but especially SMBs. The ability to generate a clear view of your sales pipeline and associated revenues is paramount for your sales forecast. Before delving further into cash flow planning and forecasting, get a firm understanding of the different metrics, leading indicators, and any potential “levers” at your disposal.

‍#2. Manage Every Dollar

‍Yes, every dollar. Some in the industry, such as McKinsey, have referred to this as a “cash war room". Essentially, in times of uncertainty, you need to review all your cash outflows and payments. Make sure you are diligent about spending only on mission-critical items and pause the “nice to haves”. But don’t rely only on spreadsheets alone to get the job done. Working with accurate, complete data is incredibly important. Cash flow forecasting software can easily produce reporting on historical numbers to simplify this step and ensure you are working with all the pertinent information.

‍#3. Plan for the Worst-Case Scenario

At a minimum, come to agreement on three key forecast scenarios: best, moderate, and worst-case. For cash and expense planning it is recommended that organization’s use their “worst-case” topline scenario as it provides a conservative view of your expense base. To make these tips work for your organization, bear in mind that an accurate Statement of Cash Flows depends first on an accurate Balance Sheet. Otherwise, your analysis is built upon a house of cards. This underscores the need for synchronized financial statements.

Why Synchronized Financial Statements Are Important

Synchronized forecasting of critical financial statements can deliver a direct line of sight into the future financial health of your company. Producing accurate and timely statements – and gaining immediately actionable insights from them – is critical for understanding what’s going on in the business and assessing the financial impact of corporate decisions. For example, do you have sufficient cash on hand to purchase inventory for the projected growth? Do you have the liquidity to support the additional workforce in your forecast? Will you be able to achieve the projected P&L targets? Automated, synchronized financial statements - which include the forecasted cash flow statement – gives you confidence and clarity. By assessing how different scenarios and assumptions will impact the organization and knowing what funds are available at any point in time, you can uncover new opportunities to accelerate growth and minimize risk. As market conditions ebb and flow, your ability to accurately forecast your balance sheet and cash flow is critical to your organization’s success. Understanding where the cash is coming from – and going to – allows you to confidently budget for future activities and understand their impact on your organization’s financial health. With cash flow forecasting software that is based on synchronized financial statements you and your team can spend less time reconciling and more time analyzing, preparing your organization to thrive in the face of whatever business challenge comes next.‍