5 Things You Never Knew About Cash Flow

“Cash is king” said the business guru sagely. The audience applauds rapturously. We’ve all heard the old cliche. But it’s strange how rarely anyone elaborates on this apparently universal truth.

At Float, we believe in cutting through that veneer because cash is too important to be relegated to a book of trite sayings.

We believe that if business owners can look at their enterprises through a lens of cash, they can start to understand their businesses better and easier than ever before. Specifically, here are 5 things we think cash flow forecasting can do for you:

1. You Can Pay Yourself Properly

A lot of SMB owners pay themselves according to what is left in the pot at the end of the month. This often results in personal cash flow problems, especially when a business has a slow month.

Doing a cash flow forecast in this situation will achieve two things. Firstly, it will help you predict what your bank balance will be at the end of each month. And secondly, it will allow you to have a conversation with your accountant about the steps you can take to improve your situation.

2. It Will Help You Grow Successfully

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Growth is expensive. It chews up cash and spits it out.

If you are growing quickly (or planning to) you will most certainly find yourself white-knuckling it with your cash.

Having a cash flow forecast means that you can spot times where cash will be tight, but also times where you may have an excess of cash, allowing you to reinvest and optimise your growth plan. It also means that potential funders, be they lenders or investors, will have more faith in your plans.

3. It Will Help You Plan Efficiently

You know that big thing you’ve been thinking about doing with your business? Maybe it’s a new bit of kit…or an office move…or upgrading the IT system…or hiring someone new…

One of the big questions…sorry…the only question that you’ve been asking yourself is “can we afford it?”.

You’ve been running the numbers endlessly in your head but the volume of data is overwhelming and you just can’t quite work out how risky it will be.

You need to do a cash flow forecast, my friend! Not only will it be a one-stop-shop for all those numbers, but you’ll be able to model different scenarios too. No more washing-machine thinking…simply a cold, clear view of the possible futures.

A cash flow forecast gives you the truest view of your company’s future you’re ever likely to see.

4. You Can Spot Errors in Reporting

Business owners commonly evaluate business performance through a lens of ‘Profit & Loss’ (P&L) which basically looks at how much a company is selling and how much it owes.

Nothing wrong with that. Sensible things to keep track of!

But looking at all the actual cash moving in and out of a business puts a different spin on things and can shine a light on some major errors. For example, one business that recently signed up to Float discovered that they were double-counting a regular bill that was worth $100,000 a month!

5. It Will Give You Peace of Mind

And possibly the most important for last. For most of us, business is a means to an end, not an end in itself. We have other interests and commitments in life and so we really don’t want to spend all our time thinking and worrying about the company.

A cash flow forecast gives you the truest view of your company’s future you’re ever likely to see.

And even if what you’re seeing is a range of possibilities, it allows you to prepare for those different futures, freeing up brain space to enjoy other parts of your life.

How should you build a cash flow forecast?

You could build a cash flow forecast in Excel – there are plenty of templates available through a quick Google search. However, these will be hard to maintain and can be very error-prone. A way to avoid that hassle is to use a tool like Float to connect to your accounting software and automatically import your accounting data every day, saving you heaps of time and letting you focus on your bit – entering an accurate forecast.

Ewan McCowen

I'm a marketing professional and Babson alum who loves all things business. When not in the office you might find me somewhere in the Scottish Highlands, fishing or wild camping.