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Forecast your cash position and sleep more soundly.

In the past insight, we created an example to demonstrate that it truly takes money to make money; that growth calls for increases in working capital. The example we crafted proved that companies can easily find themselves strapped for cash during periods of rapid growth as well as in downturns.

There are many techniques and time horizons for forecasting cash. For those companies with constant billings to customers during a month, and for those with extra large fixed costs such as payrolls at periods during a month, it is important to begin the discipline of the 13 week rolling forecast as a tool for finding and planning around short term cash problems. Each week, the actual cash position is updated and the past week dropped from the forecast and a new week added. This format is much more relevant to management that a monthly forecast when cash is tight, allowing for weekly planning in advance. In addition, and perhaps in place of this, for many more stable companies, a monthly cash forecast is appropriate and serves as an excellent planning tool for arranging any lines of credit or extensions of payment to suppliers over the months’ time.

I’ve experienced periods of failure to plan short term cash needs, finding myself worrying over daily cash flow, and draining energy and focus from strategic issues. And I am sure many of you who have been in growing businesses have had this experience as well. For those of us who have lived through the worry of arranging for (or passively hoping for) cash to cover the next day’s needs, this insight is a lesson learned. Even if accurate cash forecasting highlights a coming problem, the element of time and elimination of surprise both work to reduce the drain upon management, and allow for time to plan for ways to increase cash flow systematically.



    A rolling weekly cash flow to monitor allows one to change stride without tripping and falling the consequences of which you clearly pointed out.

    I would add that a “dashboard” to sumarize the spreadsheets with the CEO taking the half hour to pull them together internalizes the need to take action and where. It also provides morethan enough time to set up the capacity to manage the sales increase with a good bank and or a factor to buy some or all of the invoices.

    Thanks for the clear warning on the ineveitable costs of not monitoring and managaing.

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