Cash flow forecasting. Sounds like something a Wall Street type uses a big chart full of zigzagging lines to predict, right? What does this have to do with you? Quite a lot, actually. As a small business owner, if you can get a handle on your cash flow forecasting you can make smarter decisions about your business.
What is cash flow forecasting?
Don’t get turned off by the financial-sounding term. Cash flow forecasting is simply predicting how much cash you’ll have available to you in a given period of time. It behooves a small business owner to know how much cash you can expect to have in your grasp so you can decide important things like:
Can you raise prices? Are your services so in demand that you can sustain yourself for six months? A year? If you find you’re flush with cash, it might be time to raise prices. You’re obviously a commodity in hot demand.
Should you take on this client? If you have a cash flow forecasting measure in place, you can determine whether or not a client is a good fit. Will the money you’ve made from this client in a year be worth the time you’ll spend working with them?
Can you afford to fire a troublesome client? The same goes for a client who just isn’t working out. Do you really need the cash that much, or do your other clients sustain your business enough that you can say sayonara?
Can you take time off? Can you afford that sabbatical month backpacking in South America? A month off to work on personal projects? A year off to start a family? With cash flow forecasting, you’ll be able to predict just how far the savings you have now and the cash you plan to make in the upcoming months will carry you.
Do you need to market more? On the other hand, if your cash flow future looks gloomy, it might be time to put out feelers. You might consider contacting former clients, asking for word-of-mouth recommendations, and cutting expenses until your cash flow forecast looks cheerier.
How do you predict cash flow?
If I say, “start with a spreadsheet,” I know you’ll probably throw your checkbook at me, so I’ll tell you how I predict my own business’s cash flow without formulas and pivot tables. I use WiseCash, a cash flow forecasting app for small business owners.
With WiseCash, you enter your bank balance and all of your regular income and expenses. From there, WiseCash predicts a “crash date” for you. If your crash date is far, far in the future, you know you have wiggle room to dump that bad client, raise your rates, or take time out of your busy schedule to work on a passion project. As you pay off debts or take on new clients, you can add income and expenses into the mix and refresh your “crash date.”
We small business owners dwell in a world of uncertainty. Cash flow forecasting is just one more tool we can use to get a grip on our small business finances and grow a kick-ass company.