What is Cash Flow Management and Forecasting?
Make no mistake, cash is the lifeblood of your business.
Whether you’re steadily growing week over week, or just starting to get your new small business off the ground, having keen insight into your cash flow will help you in forecasting future spend, leading you towards smart, sustainable growth.
In fact, putting together a proper cash flow forecast may be the single most important action you take to help ensure your business never runs out of money.
Let’s take a look at some common questions from business owners.
What is Cash Flow Management?
Simply put, cash flow management, or spend management, is how you plan for the future. It’s your system for gathering insight into your future financial positions based on data, trends, your growth strategy, and how you forecast your upcoming spend.
Modern tools allow for detailed insights into your balance sheet, enabling you to manage your money more effectively than ever before. With detailed insights into how your business operates, you can forecast future spend, project the financial consequences of growth, and know what your business will need to weather future economic climates.
What are the Goals of a Cash Flow Forecast?
The main goal of a cash flow forecast is to assist business owners with managing liquidity within an organization and ensuring that the company has the necessary amount of cash to meet obligations and business needs. To safeguard against problems before they arise, it’s important to be honest about your finances while budgeting and tracking spend to the dollar.
One of the worst things any small business can do is mistakenly or surreptitiously hide expenses to paint a rosier picture of financial health—fiscal projections can only assist you if you’re honest about your company's budgeting and financial performance.
Effective cash flow forecasting will allow you to adjust or pivot when necessary to aid in the survival of your business, and ensure you never ‘accidentally’ run out of money.
How Can I Properly Manage Cash Flow?
Every business owner keeps a constant eye on their balance sheet. But the real power comes from monitoring your inflows and outflows, working within a system to understand the nature and value of this data.
Perform a Monthly Analysis
One of the best things you can do is perform a monthly analysis of your finances.
Although it’s impossible to fully predict the future, historical data from your company is the key to understanding how to forecast what lies ahead. Use insights from your spend management tools to estimate cash flow for the year to come.
Monitor your cash on hand. Keep detailed records of cash receipts and cash payments. If your spend management tool has an automatic receipt-matching feature, take advantage of these time-saving tactics. Brex spend reports, receipt-matching, and ERP-integrations automate many of the sorting processes in real-time, taking the guess-work entirely out of the equation.
Above all: track everything. The health of your business relies on an honest accounting of all financial transactions on your cash flow statement— stay organized, and stay aware.
Achieve Stability with Cash Flow Projections
There are two methods for spend forecasting— direct and indirect. Which method you use depends on your goals.
Typically, the direct method is used for forecasting shorter-term quarterly forecasts. Look at information from accounts receivable and accounts payable, and note the trend.
When taking an indirect spend forecast, your goal is to take a broader look at your company’s cash flow needs to determine if your company has the available cash to take on a project or move in a new direction.
More Tips to Ensure Stable Cash Flow
Achieving cash flow stability is a result of laser-focus on your goals and your pathway to achieving them. Know where you are in the journey, and stay the course.
Some business owners know they’re heading straight for the Fortune 500, while many small businesses simply want to grow and thrive locally. No matter your goals, you will still need to remain focused on inflows and outflows of cash in order to achieve stability.
Make sure you understand where your inflows are coming from. Understand your fixed and variable costs, and know at a granular level the scalability associated with those elements— a fixed cost may be small at the early stages of your small business, but fixed costs that scale alongside your growth may be something you want to take a look at.
Ask yourself: are these expenses core to your business plan? Brex automatic categorization will let you know which costs are discretionary and rising, for example, so you can make better judgements about which fixed or variable costs are impacting your cash flow as you scale.
There’s never been a better time to gather insights about your business, manage cash flow, and smartly forecast spend. Brex Spend Management tools are designed to keep you deeply in touch with your financial objectives throughout your journey, ensuring you have everything you need to both meet and exceed your own business goals.