Cash Flow Forecasting

Cash is king – it always has, it always will be.

Businesses that optimize their cash flow forecasting has a much higher likelihood of improving financial performance. The best in class companies always know exactly how much cash they have and where their cash is because it is through these that they can manage their liquidity risks better.

How a company does its cash flow forecast differs – there are some that use specialized technology and there are those that do it manually through excel spreadsheets.

Why is there a need to improve Cash Flow forecasting?

During the financial crisis, the banks became very restrictive in their lending policies which sent some companies scrambling.

Many businesses had to resort to utilizing their own resources to get the business going but even by coughing up internal resources, many companies realized (the hard way) that they still needed to make sure they have a reliable data that gives a clear picture of their actual and expected cash.

During these times, a lot of attention was directed to management of account receivables and account payables. It was then when businesses realized that without an accurate cash flow forecasting process, they cannot analyze, track, and manage their risks.

It is worth pointing out that it isn´t only in times of financial crisis that cashflow forecast become useful although of course it is a good way for the business to stay afloat during stressful periods. Having too much money lying around either through corporate savings or through in house accounts is also not good as the company will lose money on interest pay outs.

Best Practices in Cash flow Forecasting

Having established the importance of knowing whether or not your business has enough cash to go around or if it has enough cash to invest and expand, it is time to look at ways by which your company can improve its cash flow forecasting process.

The best way to prepare a cash flow forecast is by doing it in a step by step process. Here are our recommended steps:

  1. Prepare the Sales Forecast

It is smart to look at historical sales figures so that you can decide the type of adjustments that are to be made based on historical trends. For example, if you see a decreasing trend, then this can be better prepared for.

The sales figures are constantly changing because they are dependent on many factors like the customer type, payment expectation, competition, and how the economy fares.

  1. Look at the details of all estimated cash inflows

Depending on what type of business you have, there are various sources of cash inflows. It can be from tax refunds, government grants, investor money, and payment of loans or royalties, license fees or maintenance fees.

  1. Look at the details of all estimated expenses and cash outflows

This is a particularly important step especially for newly established businesses because there is a need to estimate all the cash outflows in order to have an idea how much cash is needed to cover for all the cash going out.

When calculating cash outflows, there is a need to figure out how much it costs to make the goods available because through this, you can adjust your sales numbers as needed.

Read Also:  The 4 Most Common Causes of Cash flow Troubles

Beyond normal running expenses, cash outflows can come from purchase of new assets, loan repayment, bank charges, pay out to investors, or investment in surplus funds.

  1. Put all the details together

At the beginning of all these, you would have already decided which period the cash flow forecast

Cash flow forecasting is all about timing and movement of cash, this means there is a need to have an opening bank balance which is the actual cash on hand. From this, cash inflows are added and cash outflows are deducted for each period. The resulting amount at the end is the closing cash balance which then becomes the opening cash balance for the next forecast period.

  1. Review estimated cash flows against actuals

This is one of the most important steps – review and compare. Soon as you have prepared and gone through all 4 steps, go back and check the estimated versus the actual cash flows for the period. This is done to highlight the difference between what has been estimated and the actuals to help the business better understand why the cash flow didn´t meet the expectations.

In all of these, it is important to remember that cash flow forecasting is very dependent on timing accuracy so it is important to be as accurate as possible on the timing of the cash flows.

Automating Cash Flow Forecasting

As mentioned earlier, some companies manually perform cash flow forecasting and there are those that utilize a specialized technology.

While cash flow forecasting using excel spreadsheets has traditionally worked, it is not very optimal and it is unnecessarily tedious for those that are tasked to do it. Utilizing modern technology such as Performance Canvas by DSPanel helps businesses to leverage significant efficiency gains.

CPM software such as Performance Canvas by DSPanel reduces the manual tasks in the collection of data and in reporting by automating these processes. For example, apart from streamlining and automating the budgeting, reporting, and consolidation side of things, it has the capability to automate and optimize the management of accounts receivables and accounts payables as well as automate the sales forecasting process to aid in cash flow forecasting. This makes cash flow forecasting more efficient, more accurate, and more properly timed.

To know more about how to improve your company’s cash flow forecasting through a specialized solution, visit or email to see a free online walk through of the software.


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About DSPanel
DSPanel offers cutting edge technology platform for business analytics, planning, and visualization. DSPanel designs, builds, and operates with the end users in mind. Performance Canvas was created by DSPanel to answer the unarticulated needs of the market not addressed by previous available solutions. With Performance Canvas, information is transformed into valuable business insights for the business executives to utilize in their decision-making process. DSPanel currently has over 2500 organizations deploying their solutions.




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