Cash Forecast Tool

In my last blog I discussed how cash is the lubricant of business and how much stress cash can create.  A key tool every small business should be using to prevent cash surprises (and for cash management) is the 13 week rolling cash forecast. This simple tool will help the business owner sleep better at night. (There are other tools used for cash management but I am only focusing on the short-term cash forecast in this article.) Thirteen weeks are used because it is a rolling quarter and provides a long enough time frame to be able to proactively act upon upcoming cash demands. This tool also helps to bring many other aspects of the business into focus including sales, collections, spending, etc. It does not take very long to create this tool but it will provide tremendous benefits for the small business owner in managing the business.

The tool (model) starts with beginning cash, estimates cash collections and disbursements, and results in the projected ending cash balance. This results in showing where there will be cash shortages or excesses. This tool does not eliminate cash crises or cash problems. However, it provides the small business owner with an early warning system that there is a cash problem or cash excess in the near future. This allows time to deal with the situation proactively. The last thing you want is to come in to the business in the morning and be surprised that there is a cash crisis that must be dealt with immediately; that situation is very stressful.

What is keeping you from utilizing this simple tool? Is it a lack of knowledge by your accounting staff? Is it disbelief that it is important or will make a difference? Having been involved with several successful turn-around situations, I can tell you that the 13 week rolling cash forecast is critical for survival. If you are not using this tool the time to start using it is now. One of the services I provide is creating a cash forecast model tailored to the specific client.

If you want to eliminate cash surprises, you will want to utilize this tool.

A well lubricated business has adequate cash to operate and runs smoothly!

Dave Mayo, CPA, CGMA
CFO 4 Small Biz Partner