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Cash Flow Forecasting for your Business

Living without a solid idea of your business’s future earnings and profit can be a stressful and scary period of your career. While there are financial solutions available, like a business line of credit, to help you through growth periods or slow periods, proper cash flow forecasting is a practice that will help reduce some of the stress and anxiety that comes along with managing your business.

According to the business experts at Pharus Group, headquartered right here in Florida, this practice takes into account your operating cycle, seasonality and anomalous expenses to identify cash surpluses and deficits. Understanding when and why these surpluses and deficits will occur enable you to plan accordingly and maintain financial control.

Important business decisions should always be made on an objective evaluation of the facts. Pharus Group notes that far too often they see business owners and managers make decisions based on “feeling” or the current bank account balance. Such decisions are typically made in a vacuum with little to no consideration for other factors. Running a business that way will have a negative impact on the long term success of the company and these practices frequently causes unnecessary anxiety over available cash. But this uncertainty can be resolved with a little bit of math.

The formula for cash flow forecasting is fairly simple: Opening Balance + Current Month Income (cash in) – Current Month Expenditures (cash out) = Closing Balance. Using a spreadsheet, build this for at least a 6-month period and evaluate the changes in closing balances. Even profitable businesses can struggle with cash flow and cash management and implementing a discipline of cash flow forecasting will help devise and implement strategies that will improve your cash conversion cycle and available cash position. If your forecast reflects a time period in which you’ll likely experience a shortage or slow period in your business (perhaps your business is seasonal), Seacoast Business Banking offers a variety of solutions and a team of advisors that would love to sit with you and determine the best fit for your business’s needs and goals.

Highly seasonable businesses will benefit greatly from an annual cash flow projection, which will clearly demonstrate the peaks and valleys of available cash through the course of the year along with all of the known operating expenses. If your business has certain months where revenues are down, you must plan in advance and hold adequate reserves from the months that are more profitable. When forecasting tools are not utilized, spending can get out of control and cash surpluses from a profitable month in season can be depleted and unavailable for the lean times due to seasonality. In addition, unexpected expenses can also be problematic, especially if they occur during the off-season and cash reserves have not been maintained due to lack of planning.

Don’t allow your business’s cash flow concerns to intimidate you or cause any further undue stress. Through a little simple math and forward thinking, you can relieve the stress and begin managing your business as effectively as possible.

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