Cash Forecasting is Critical, Especially for Growing Companies

As the saying goes, "You only run out of cash once!" For growing businesses, this couldn't be more true. As companies scale, managing cash flow becomes increasingly complex, and an accurate, timely cash forecast is one of the most critical tools in ensuring financial stability and avoiding crisis. At Dowdy CFO Partners, we’ve seen firsthand how a detailed cash forecast helps leadership teams avoid liquidity crises, navigate periods of rapid growth or change, and prepare for unforeseen challenges.

One of the most effective forecasting methods is the 13-week cash forecast. It gives a detailed, short-term view of cash inflows and outflows, allowing business leaders to make informed decisions quickly.

Here are some tips to put together a reliable 13-week cash forecast:

1. Start with Actuals: Use recent financial data as a foundation. Start by incorporating your actual cash balance, and ensure any recurring payments and inflows are accurately reflected.

2. Engage Key Stakeholders: Involve team members from departments like sales, operations, and HR to understand the timing of significant cash events (e.g., customer payments, large capital expenditures, upcoming inventory purchases, hiring plans).

3. Monitor Timing of Receipts: Be realistic about when cash from customers will actually be received, factoring in actual invoices outstanding, typical payment terms, delays, payment plans and seasonal trends. 

4. Track Outflows in Detail: Ensure all anticipated payments (rent, salaries, vendor payments, debt service, etc.) are properly accounted for. Consider regular and non-regular payments (like taxes or one-time expenses).  Start with actual AP balances but also review accruals and un-invoiced purchase orders.

5. Revisit and Adjust: Review your cash forecast weekly, comparing projected figures with actual cash movements. Adjust future weeks based on any changes in timing or unexpected events.

6. Take Action: Use the forecast as a management tool and not just an informational report. If collections are lagging, contact slow paying customers to come up with a plan for them to get current. Throttle any discretionary spend and capex plans. 

At Dowdy CFO Partners, we specialize in helping companies create robust cash forecasting models that empower leadership to make better financial decisions.