Keep Growth On Track With Cash Flow Forecasting

Business growth often means new customers and a stronger market presence. But growth can also bring added costs. And without careful planning, these extra costs can potentially dampen your business’s cash reserves. Here’s how you can use cash flow forecasting to understand whether you have enough resources to support a successful expansion of your business.

Step 1: Create a rolling forecast. Begin by building a rolling 12-week cash flow forecast to get a clear, short-term view of your financial outlook and to support timely, informed decisions. Include all expected inflows and outflows, and account for real-world factors, such as clients who often pay late. Leave out any revenue that isn’t confirmed or is still being negotiated. Update the forecast on a regular basis since business conditions can quickly shift.

Step 2: Test growth scenarios. Once you have a baseline forecast, consider what-if scenarios that reflect possible growth situations: Scenario testing helps you see how different decisions or external events could affect cash flow. It prepares you to respond with a plan rather than improvising in the moment.

• What if sales grow faster than expected? You may need additional staff or inventory sooner.
• What if a major client pays later than planned? A temporary shortfall could appear.
• What if you invest in a marketing campaign? The timing of costs and returns should be compared

Step 3: Link forecasting to your overall strategy. Cash flow forecasting shouldn’t exist in a silo. Rather, weave it into your overall growth strategy. When done right, it becomes much more than just a financial report. It turns into a powerful decision-making tool that helps you evaluate what’s possible, what’s risky, and what should wait.

EXAMPLE: Let’s say you’re thinking about launching a new product or service. A cash flow forecast can help determine whether your current cash reserves are strong enough to support the launch now or if it’s better to hold off for later. Forecasting helps assess whether you have enough liquidity to open a new location on your own or if you’ll need external financing. Even operational decisions, like increasing payroll to support a new service or product line, can be tested against your forecast, showing how long you can carry the cost before the new revenue starts to cover it.

Step 4: Automate for efficiency. Spreadsheets can work when creating your first few cash flow forecasts but consider automating this process as soon as you can. Specialized apps can help you save time and reduce errors by connecting directly to your accounting software and update your transactions as they occur.

Many businesses encounter challenges during periods of growth because they underestimate the cash required to sustain expansion. When you plan ahead with cash flow forecasting, you can feel confident the cash will be there when it’s time to expand your business.