Let’s face it, most of us weren’t born with a love of numbers. Sure, we liked showing how well we could count to 10 when we were three years old, but the majority of us forgot how to do a simple equation as soon as we graduated high school (thank you, calculators). Fast-forward to the current day. You are running your own business and quickly realize how nice it would be to have Mr. Jefferson, your 12th-grade Statistics teacher helping with your company’s accounting. 

Every business owner knows the only way to keep your business alive is by staying in control of your cash flow. According to a US Bank study, 82% of companies fail because of inconsistent or insufficient cash flow. Whether you handle your finances independently, have an accountant on staff, or outsource a CFO or fractional CFO, it’s critical that every business owner fully understands their future finances to make better financial decisions today. 

Creating a cash flow forecast is the number one way to gain insight into your business. 

Your cash flow forecast helps you predict and track future profit and loss under varying conditions. Your financial projections can serve as an “early warning system” to identify shortfalls in your cash flow, so you can find ways to cut costs and generate more sales. It can also help you plan for growth by knowing if you have the funds to expand to new markets, hire more staff, or initiate large marketing campaigns. 

If you don’t have an accountant (or your high school Stats teacher) at your fingertips, here are some simple steps to help you predict your cash flow accurately and give you peace of mind about your company’s future. It’s important to note, the more data and information you can get company-wide regarding cash flow, the better you can understand what drives your numbers. 

1. Determine your timing: Decide how far out you want to plan (30 days? Six weeks? One year?). If you’re an established business, you can project further out because you’ve had more time to collect data, resulting in a more accurate calculation. However, new companies have less information to pull from, so the further out your predictions, the less precise your forecast will be.

2. Identify your inflows: First of all, don’t mistake inflow for revenue. Inflow goes beyond revenue and includes all the money coming into the business. Identifying inflow means adding up all your sales as they hit your bank account within your determined time period, as well as non-sales income such as tax refunds, investments from shareholders, grants, etc.

3. Identify your outflows: Here’s where you make a list of all the money you will be spending—this includes employee salaries, rent, loans, tax bills, product material, marketing dollars, etc. Total this number up and subtract it from your total inflow from Step 2 to get your cash flow figure.

4. Monitor, adjust, and update results: Keep a weekly or monthly running total of your cash flow to get a clear picture of your forecast over time. If you see a pattern of negative cash flows, you’ll need to reassess your spending and make sure you can keep your financial commitments. If you have a pattern of excess cash, you may want to plan for expansion. 

Although cash flows can’t be 100% accurate (no one could have predicted a global pandemic in their cash flow forecast), it is the simplest, most effective way to know you’re on track for success.  

Get ahead and stay ahead of your finances with an outsourced CFO.

It’s safe to say that you are an expert on what your company offers. Still, most business owners can admit that certain responsibilities required to run a successful business, like accounting, fall outside their key strengths. If managing your cash flow keeps you up at night, it might be time to consider an outsourced CFO. RTA Group has a team of expert CFOs who can help with your cash flow and give you the confidence you need to bring your business to the next level. Contact us today.

Request a custom quote or more information about a service we offer. Call (833) 578-2477.