When you’re doing everything right and your clients are happy, why is it that you can’t pay yourself?
On paper your business looks fine, even healthy. But you can’t explain why your bank account tells a different story and you’re scrambling to figure out how you’re going to make payroll.
This is where a cash flow forecast comes in. Unfortunately, most of the business owners I’ve met over the years don’t know what this is.
A cash flow forecast is a forward-looking picture of exactly when money comes in and goes out. It’s the most important financial number in your business. Yes, more important than revenue, profit, or bank balance on any given day.
These other numbers tell you what already happened while a cash flow forecast tells you what’s coming. It’s what gives you exactly what you need to take the actions necessary so you’ve got money coming in before it goes out.
What Does a Cash Flow Forecast Tell You?
Your cash flow forecast maps the timing gap between when you invoice and when you actually get paid. It alerts you to your next quarterly tax bill that’s 2 months out. It shows you your slow season that you keep hoping won’t be as bad as last year’s and whether your current trajectory supports your hope.
I know this matters because every business owner I’ve met or worked with who’s struggling with cash has revenue. They’re just blindsided by timing. They hired when the pipeline looked full, not knowing payments were running 60 days late. They drew a full salary in October not seeing the November dip coming.
A cash flow forecast would have shown them both and more.
If you’ve ever wondered why keeping more of what you earn feels so hard, a cash flow forecast will help you immensely.
Is slow payment from big clients really out of your control?
This might sting a little, but the answer is “No”.
Large companies take a long time to pay their bills. Enterprise clients, government contracts, large institutional buyers have payment cycles that are 60, 90 and sometimes 120-day payment cycles. They need this time because of approval chains, accounting departments, and bureaucratic timelines that take time to work through.
But here’s the thing. The timeline isn’t a surprise. It was knowable from day 1 of the engagement.
So, the slow payment didn’t create the cash problem. It was the absence of a forecast that did. And according to QuickBooks Late Payments Report, 56% of small businesses are currently owed money from unpaid invoices (47% of which are more than 30 days overdue), averaging $17,500 per business.
A cash flow forecast builds payment timing in as a planning variable instead of a surprise you just deal with. When you know a client won’t pay for 90 days, you plan around that reality.
This prevents you from wondering why your account looks thin in March after you sent out that large invoice in January. You see it coming, so you can plan and make decisions. For instance, maybe you draw a smaller paycheck for a few weeks, time a hire differently, or revisit payment terms with the client BEFORE you’re struggling with cash.
This is a huge shift for business owners because they were never taught about cash flow. But with a cash flow forecast, they can stop reacting to the bank balance and start planning for it. Because it can actually show that a problem starts well before it hits.
Why Don’t Most Small Business Owners Have a Cash Flow Forecast?
Because they’ve never heard of one or because they think they already know their numbers.
And they do know their revenue, rough expenses and profit numbers. So they’ve got a rough handle on their financial picture when they look backwards at last month, last quarter, last year…
This is the problem!
Business owners are making bad decisions for themselves, their employees, and their business because they aren’t looking at all of the data about what the future holds.
The margin for error is thin and arguably getting thinner. Clients are slow to pay and costs are rising.
A cash flow forecast helps you understand the timing of your revenue and costs. So you can make better decisions and avoid the costs of poor financial awareness.
Knowing You Need a Cash Flow Forecast Doesn’t Mean You Can Build One That Works.
Before you start down the path of building one yourself, you need to know that it will require you to make appropriate assumptions, update it regularly, and account for the real timing of your revenue and costs.
So many smart business owners get stuck here. They know they need a forecast and assume a template will do the job. Oftentimes it won’t because a cash flow forecast needs to be built around the specific profit levers that are either working for your business or against it. In other words, a generic template can’t cover exactly how you run your business.
If your bank account tells a different story than your revenue statement, the cash flow forecast is just the beginning. Download a copy of The Business Growth Plan to see what you can do about it.
