Insight

4 Ways to Refine your Cash Flow Forecasting

4 Ways to Refine your Cash Flow Forecasting | accountant in baltimore county md | WCS

Run a business for any length of time and the importance of cash flow becomes abundantly clear. When payroll is due, bills are piling up and funds aren’t available, blood pressure tends to rise. For this reason, being able to accurately forecast cash flow is critical. Here are four ways to refine your approach:

1. Know when you peak. Many businesses are cyclical, and their cash flow needs vary by month or season. Trouble can arise when an annual budget doesn’t reflect, for example, three months of peak production in the summer to fill holiday orders followed by a return to normal production in the fall.

For seasonal operations — such as homebuilders, farms, landscaping companies and recreational facilities — using a one-size-fits-all approach can throw budgets off, sometimes dramatically. To forecast your company’s cash flow needs and plan accordingly, track your peak sales and production times over as long a period as possible.

2. Engage in careful accounting. Effective cash flow management requires anticipating and capturing every expense and incoming payment, as well as — to the extent possible — the exact timing of each payable and receivable. But pinpointing exact costs and expenditures for every day of the week can be challenging.

Businesses can face an array of additional costs, overruns and payment delays. Although inventorying every possible expense can be tedious and time-consuming, doing so can help avoid problems down the road.

3. Keep an eye on additional funding sources. As your business expands or contracts, a dedicated line of credit with a bank can help you meet cash flow needs, including any periodic shortages. Interest rates on these credit lines, however, can be high compared to other types of loans. So, lines of credit typically are used to cover only short-term operational costs, such as payroll and supplies. They also may require significant collateral and personal guarantees from the company’s owners.

Of course, a line of credit isn’t your only outside funding option. Federally funded small business loans have been widely offered during the COVID-19 pandemic and may still be available to you. Look into these and other options suitable to the size and needs of your company.

4. Invoice diligently, run leaner. For many businesses, the biggest cash flow obstacle is slow collections. Be sure you’re invoicing in a timely manner and offering easy, convenient ways for customers to pay (such as online). For new customers, perform a thorough credit check to avoid delayed payments and bad debts.

Another common obstacle is poor resource management. Redundant machinery, misguided investments and oversized offices are just a few examples of poorly managed expenses and overhead that can negatively affect cash flow.

As always, please do not hesitate to call our offices for additional information and to speak to your representative about how this could affect your situation.

 

 

© 2021

 

Related Insights

Three tax breaks for small businesses | accounting firm in baltimore md | Weyrich, Cronin & Sorra

Management Advisory Services & Business Consulting

Three tax breaks for small businesses

Sometimes, bigger isn’t better: Your small- or medium-sized business may be eligible for some tax breaks that aren’t available to larger…
Is your business required to report employee health coverage? | accounting firm in harford county md | Weyrich, Cronin & Sorra

Management Advisory Services & Business Consulting

Is your business required to report employee health coverage?

As you’re aware, certain employers are required to report information related to their employees’ health coverage. Does your business have…
Why an LLC might be the best choice of entity for your business | cpa in baltimore county md | Weyrich, Cronin & Sorra

Management Advisory Services & Business Consulting

Why an LLC might be the best choice of entity for your business

The business entity you choose can affect your taxes, your personal liability and other issues. A limited liability company (LLC) is somewhat…

Connect with us

Use the form below to send us an email. WCS responds directly to all inquiries and general questions within 24 hours of posting.

This contact form is deactivated because you refused to accept Google reCaptcha service which is necessary to validate any messages sent by the form.