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How Healthy is your Cash Flow Forecasting?

Posted by Steve Barthol on Fri, Jan 23, 2015 @ 08:00 AM

The start of a new year seems to ring in a plethora of resolutions encouraging healthy eating and exercise. What a great opportunity to check the health of your business working capital and make sure you have the reserves you need to stay in business if your customers delay payment, or simply cannot pay due to an unexpected emergency. 

Cash Flow forecastingAt the end of the year we considered some cash flow reflections, and covered the importance of managing the cash flow cycle to maintain a healthy business, achieve success, and continue to grow. Forecasting correctly plays a huge part in the overall cash flow picture. 

Correct cash flow forecasting is really helpful if your company ever suffers from a gap in regular cash flow due to key customers struggling to make payment on time. Here are some questions to think about when it comes to making sure your company has a safety net: 

  • Do you have an open line of credit with a bank or other financial institution?
  • Is there enough readily available working capital to cover emergency cash flow concerns?
  • Have you considered asking your less than reliable customers to pay in installments?
  • Have you thought of factoring key invoices to make certain those late paying customers are covered? 

So what does cash flow forecasting mean? 

You are basically concerned with making an educated guess into the future of your sales by looking at your company history, the market trends of your particular industry, as well as general economic forecasts. This is not always as simple as it sounds. It is often best to consider both worst case and best-case scenarios when anticipating your forecast for the following year. Some major considerations should include:

  • What are the variables influencing your business?
  • What is your business plan and how much money do you need to implement it?
  • Do you have any major capital investments planned and have you allowed for them? 

Beyond this, be sure to be as accurate as possible when it comes to projecting costs. Take every element into account, from the cost of employees and casual labor, to office space, technology and training. Forecasting correctly will help you when you are ready to take the next step, and apply to a bank or other financial institution for a loan or line of credit. Should your projections fold under scrutiny, the likelihood of successfully qualifying for a traditional loan could be compromised. 

Should you decide your company needs some form of financing in order to keep a cash flow cushion, but bad credit, or lack of credit history is an issue; there are certainly options available. Take a moment to evaluate the benefits of invoice factoring versus a traditional bank loan. Factoring your accounts receivable offers a financial solution that can answer the cash flow dilemma. Don’t let bad credit control your business decisions. Contact Bay View Funding and allow one of our team of financial experts to guide you through the process.

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Topics: About Invoice Factoring, Accounts Receivable Management, Cash Flow management

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