Cash flow is a measure of the amount of money your company makes and spends during a given period and is frequently used as a barometer of your company's health and worth. Accurately calculating your company's cash flow is vital in determining if your company has enough money to operate. Understanding your cash flow lets you evaluate:
- Borrowing needs
- The timing of new hires and major purchases
- The timing of payables
- Product pricing and the amount of credit granted to suppliers
- The need to make strategic cost-reduction decisions
Use a cash-flow modeling spreadsheet templateAccuracy is critical with cash-flow forecasting. Thus, a tested spreadsheet template will contain formulas that will work. The best spreadsheet templates offer easy-to-understand graphics.
Excel spreadsheet. Study up on Excel's collaborative, charting and other advanced features.
Perform "what if" analysisFind break-even points for each of your product or service lines for each of your departments. Create three or more projections detailing best-case, worst-case and most likely scenarios based on the current economic situation and your company's growth goals.
Assemble financial records and employee forecastsSet aside a multi-day period when the key people within your company can formulate their own departmental cash-flow projections, then add these forecasts to your own.
Maintain a record of cash flow forecasts to improve your accuracy over timeCreate multi-year charts comparing cash-flow projections to actual year-end results.
- Improve your cash flow by keeping cash in an interest-bearing account.
- Bill your clients regularly to keep cash flow coming in.
- Keep bankers and other creditors informed of your company's cash-flow projections.
- Assign values to forecasting spreadsheet inputs to help rank their importance. Will it be critical for your company to receive timely payments from key customers during the spring, for example? If so, focus your collection efforts when needed.