Back to Blog

Cashflow Tips

What is proper cash flow forecasting and how do they get started?

Cash is the bloodline of your business so that is your compass. You need to know where you're heading. We advise all our clients to build a 13-week cash flow forecast. The most important thing to start with is looking at what goes into your cash flow forecast. You've got your accounts receivable, your accounts payable, but it's very important to also include the pipeline of your sales and the estimated cost of those sales. For example, you may have an accounts receivable but what if it takes 45 days to get that money? 

The key is to build a really good forecast model where you're able to put in due dates and expected payment dates to help align the cash inflows and the cash outflows.

What are some of the mistakes that companies make when they are trying to align their cash flow forecast with their profit and loss statement?

There are a lot of things that are going to be in your cash flow statement that are not going to be in your P&L. For example there may be payables that are booked in pre-paids that are not yet on the P&L. By making sure that you have a good schedule of what payments are scheduled, like installment payments or premium payments for your insurance payments]. It's important to build a model in Excel that allows you to move those estimated pay dates and expected incoming dates so you can really align cash inflows and outflows based on the expected pay dates, not based on what your P&L shows.

Why is it important to remember to track your installment payments?

Many businesses don't think about their credit card payments because all of their credit card expenses are going automatically into their P&L. But they might not pay the full statement balance, or they might pay some of their statement balance, or maybe they pay all of it one month and not any the next month. So that's going to directly impact your cash flow forecast and the credit card statement will not show it as a payable..

If you pull your accounts payable report, it will not be reflected. It is a balance sheet item that you need to build into your cash flow, so you can't really rely on just the regular reports that you export out of your accounting system. You have to understand what goes into your payables whether they're on the balance sheet or not and build a line for them in your cash flow.

Interest payments, too, might not be properly accounted for. You might have a big balloon interest payment that's due. So if you're just taking your cash flow forecast, and you're looking at the money that you're getting from customers, and the money that's going out through your accounts payable, you might be missing some crucial things. So I think at the end of the day, it's really important that you have some professionals look at your cash flow forecast, prepare your cash flow forecast, and make sure you always know the score.

Optima; Team; accounting

Things Ineffective Teams Do That Hold Them Back From Success

Braedon Stern

In the article "10 Things Ineffective Teams Do That Hold Them Back From Success," Jennifer A....

Read more
Diane MacPherson and family

Team Spotlight: Meet Diane MacPherson - Optima Office


Diane's official role at Optima Office is Staff Accountant/Bookkeeper. She started working at...

Read more