Cash is king. We’ve heard it for ages, but in a time of uncertainty, it’s never felt truer. As businesses look to navigate any storm – cash flow forecasting is mission-critical.

From a conceptual perspective, cash flow forecasting is the process of:

  • Looking out over a period of time
    • most often 13 weeks, but can be more or less
  • Considering when and how cash will come into your business through
    • collecting outstanding receivables
    • making cash or credit card sales
  • Considering when and how cash will go out of your business through paying things such as
    • vendor invoices
    • rent or mortgage
    • payroll and benefits

In normal course of operations, this forecast is great to have to use as a plan for large capital purchases, timing distributions or bonuses and anticipating needs for leverage during various times of the week, month or year. In uncertain times, this forecast can be used to model out what various scenarios might look like. While the model can take some finesse to create, once it exists, it can be manipulated for a variety of potential outcomes to help you plan.

One thing to keep in mind during particularly stressful or uncertain times when it comes to cash – just because it’s there, doesn’t necessarily mean you should use it! Be thoughtful about which expenses are related to creating revenue and which are not. If an expense will not generate revenue now or in the future – be thoughtful about how it can be postponed, reduced or eliminated until the related revenue will be realized. Tapping into a line of credit or using a credit card might feel like a good safety net or “air coverage” for limiting the need to reduce expenses in the short term, however, that line of credit or credit card is not cash. It is now debt that is accruing interest that you will have to pay off with future profits, which can significantly lengthen the time it takes your business to recover.

We can help

As you think about how economic uncertainty will impact your business, Elliott Davis is here to help. Our business advisors and consultants are well equipped to create cash flow forecasts and discuss factors in running various scenarios through those forecasts. With our extensive industry and technical knowledge, we are proud to partner with our customers to quickly get them the information they need to make critical business decisions. We also have professionals who can support your Accounts Receivable and Accounts Payable processes to make sure these processes remain timely as you navigate this new landscape we are facing.