Improve Your Cash Flow Forecast with These 3 Tips

Having a solid grip on your cash flow forecast and reporting is one of the most important factors for any business to track. Given the current climate, paying attention to cash flow has become more vital to a business' success than ever. For many businesses, having an accurate cash flow forecast can help to avoid potential cash flow problems, predict end of year profits (or debt), and set realistic goals for the upcoming quarters and year. Many companies struggle to produce accurate cash flow data. Not only does this make accurate forecasting nearly impossible, but it can have a negative trickle-down effect on other reports, rendering them inaccurate as well. Here are some tips and advice on how to improve your cash flow forecasting. Adopting some of these tips can help you better manage your forecasting and improve your overall FP&A process, giving you more accurate data in the long run.

Why accurate cash flow forecasting matters

Understanding your company’s cash inflows and outflows is essential for decision-making, resource allocation, and risk management. A reliable cash flow forecast allows finance teams to anticipate funding gaps, make data-driven investments, and respond proactively to shifting market conditions. By using a structured cash flow forecast model, businesses can better visualize liquidity trends and improve planning accuracy.

1. Plan for seasonality in your cash flow forecasts

Many businesses will see their cash ebb and flow during different points of the year. This can be due to factors such as seasonal sales and seasonal employee costs. For some businesses — Christmas tree farms or swimming pool installers in New England, for example — that seasonality is explicit and obvious. To create a reliable cash flow forecast, start by identifying patterns of seasonality in your revenue and expenses. For others, seasonality of revenue and expenses exists to a lesser extent, but it's still there. To improve your cash flow projections while accounting for seasonality, start by investigating reporting from previous years to determine if your business has predictable cash flow swings. While one quarter or month might not stand out as the biggest sales month, you might notice an uptick or downswing as the year goes along. This information can be crucial in budget planning and forecasting for the upcoming year. Create a cash flow forecast that highlights the seasonality in your budget. Doing this can help you plan expenditures for predicted low periods. It can also help create contingency plans for any potential issues that might arise.

2. Evaluate fixed and variable costs

When it comes time to work on budgeting and forecasting for a new year, don’t forget to audit both your fixed and variable costs. In general, it’s good practice to evaluate these costs every year or six months. Variable costs such as office supplies or utilities often fly under the radar when the time comes to take a hard look at expenditures. When refining your cash flow forecast model, analyze both fixed and variable expenses to uncover cost efficiencies. The same can be said for fixed costs, such as rent and insurance. Typically, a handful of these costs can be reduced by re-negotiating a contract or making slight adjustments to the budget. It’s also important to remember recurring variable costs. These include tax payments and other employee expenses, such as months with additional pay periods. These potential savings can have a positive overall impact on your monthly or quarterly cash flow, especially during a down period.

3. Use scenario planning to strengthen cash flow forecasting

While no CFO or budget manager wants to dwell on the worst case scenario, preparation is always a good strategy to lean on, especially when it comes to cash flow. Sales is one of the most difficult figures to estimate consistently, especially months down the road. As cash flow is tied directly to sales, incorrectly projecting sales in either the positive or negative is going to have an impact on cash flow projections.

Effective cash flow forecasting means doing what you can to mitigate uncertainty over the long run. That’s where what-if scenario planning comes into play. An easy way to approach this is to take your current sales forecast, then project the numbers with 10% more sales and 10% fewer sales. This won’t be a catchall for every variable, but it can be a good place to start in helping you get a handle on any potential cash flow issues if your original projections aren’t met.

Build a more accurate forecast with centage cash flow forecast software

Manual forecasting often leads to data silos and inaccuracies. Centage’s intelligent cash flow forecast software simplifies modeling, integrates live data, and provides dynamic reporting for better planning. Whether you’re building your first cash flow forecast model or optimizing a complex FP&A process, Centage makes it easy to forecast cash flow with confidence and precision.

Book a Demo → See how Centage helps finance teams improve accuracy and visibility in their cash flow forecasting.