Cash flow forecasting is essential for any fast growing product-based business and having sight of all the in's and out's of your business is essential if you want to feel confident and in control.

Creating a cashflow forecast doesn't have to be difficult - with the right tools like Xero as your cloud accounting software, it's core functionality and ability to integrate with top apps means that your cashflow forecasting should be a breeze! 

Our ecommerce bookkeeping clients find that Xero is a great accounting software choice for start ups and growing businesses but yes, like anything, it is worth spending some time getting to know it to really get the benefits that this tech can bring. 

What Is A Cash Flow Forecast?

A cashflow forecast is a plan that you create usually in excel or in a cashflow app -  to show how much money you expect your business to receive and pay out over a set period of time. 

Here's our top 10 tips for cash flow forecasting with Xero, that will help accelerate your growth plans and get you full visibility and control over your numbers. So let’s dive right into it and take a look.

Tip #1: Check Out Your Xero Cash Summary Report

Your cash summary report is the first place to look to understand exactly what’s going on in your business today so that you can make smart decisions involving cash flow. Find it here in Xero:  Accounting > Reports > Financial Performance > Cash Summary.

Knowing how much cash is available on a daily basis is essential to keeping afloat and keeping you flexible enough, so that you can make fast decisions when needed.

Whilst Xero’s cash summary report is limited as it simply provides a backward looking view of your company’s cash flow - your historical "actuals" only - it does serve as a useful starting point from which you can begin to build out your forward looking cash forecast. 

Tip #2: Add A Cash Summary Into Your Monthly Management Report

Your Investors and your management team will be keen to see and understand your financial performance as you grow, so make sure you include the cash summary in your overall Management Reporting and deliver these reports to them on a monthly basis.

Open communication with key stakeholders in your business - talking about cash, the availability of cash, when you might need more cash and how fast you are burning through your cash - is so important. 

With the right tools in place, it doesn’t take a lot of effort to share and start these vital conversations with the people who matter most to you in your business. 

Tip #3: Play With Scenarios - See The Good, The Bad and The Ugly! 

If you want to make your own forecasting spreadsheet, you can use a tool like Excel or Google Sheets for a simple start and have a proper go it. 

A good cashflow forecast can help you plan how much you expect to win in sales and spend in costs. When you make this plan, you are predicting (or forecasting) the future, so these are estimated figures that you put in your plan, projecting and visualising all the possible cash in's and out's and when they might happen.

The idea is that we create scenarios, so you can "see" what might happen to your business, before it does!  Create your basic model and then have a go at increasing the possible sales that might come in the future and see what happens (yay!) or why not add alot more unexpected costs into your model and see how scary that scenario might be (eek!).   

It's best to find out now on paper / spreadsheet how changes in your cashflows can impact your business - before that money actually drains from your real life bank account!  At least this way you can take action in advance to avoid the extra costs or power up to win the sales as needed. 

Cashflow forecasting helps you maintain control and stay proactive! 

Tip #4: Add-On Apps From The Xero MarketPlace

Xero has an amazing marketplace filled with great add-on features and functionality for you to explore. For example, there are tools that allow you to automate most of the cash forecasting process. 

One of our favourites which we use with our ecommerce bookkeeping clients is Fluidly .

Tip #5: Learn Your Unique Cash Ins and Out For YOUR Business

Essentially, your cash flow forecast breaks down into two rather important components:

• the cash coming into your business (sales)
• the cash going out of your business (costs)

Knowing all your typical cash ins and outs for your unique business is essential as the Founder and CEO. You need to get up close and personal with your cashflows!   

Ask yourself: How does the cash flow in and out of the business?  Can I identify the things I do that impact the cash balance in my bank account?

When you make a decision, it will often have a cashflow consequence - for example, if you take out a fancy new "must-have" software subscription - that will have a monthly cash outflow for your business, forever, until you cancel that software.  

A good cash forecasting tool can also help you understand the consequences of any timing issues if cash due to you from customers gets delayed and will help you identify any cash "gaps" you may face in the future - highlighting when money will enter and leave your bank account.

Tip #6: Stay Alert - Don't Stick Your Head In The Sand Like An Ostrich! 

There are no excuses - as a business owner, you must know how much money you have in your bank account, what you spend it on and why and how much money you need to grow your business. 

These are basic requirements of good "stewardship" of your company.  You company is not in safe hands if the person running it isn't acutely aware of the very resource that keeps it alive.  Cash is the lifeblood of your business. 

When your business starts to grow, and you begin to start spinning multiple plates, as Founder you can very quickly become overwhelmed with too many things to do and not enough hours in the day - but if you take your eye off the cashflow ball - everything will fall. 

So please stay alert to your current cash situation - and if it starts getting a little thin or scary - please don't stick your head in the sand and pretend it's not happening because nothing gets resolved that way.  Stay alert, stay ontop of where you really are with your cashflow and if it's looking bleak talk to a trusted professional advisor or your investors so that you can sensibly agree an action plan to remedy the situation before it's too late. 

Tip #7: Realistic Payment Times

Everybody likes to assume that they’ll get everything paid on the exact day when it's due, but life is rarely fair and is often much more complicated than that. 

Whilst most eCommerce trading and digital tech sales are often payment on demand via credit card and making use of direct debits for collection of subscriptions, there will be times when it is likely that for whatever reason, as customer ends up owing you money and not paying it - either delaying that payment or worse - not paying it at all.  For example:

• Credit cards declines but order has already been shipped
• A % of Unexpected refunds are due
• A customer wants to pay by bank transfer and then delays actioning it.
• Fraudulent activity occurs

It is sensible to be realistic about payment timings and build these assumptions into your cashflow forecast model. 

For example, if you are trading retail products, like a fashion product which has a high % of returns, you may want to forecast that at least 25-50% of your sales will need to be refunded - meaning, the cash will come in from the credit card sale, but you will have to return it to the customer some time later once they've returned the goods. 

Returns are a good example of how a customers actions can impact on your cash ins and outs. If you don't allocate a % of your money to cover off returns each month, you may find that you have spent the customers money that she now wants refunded!  Disaster.  You will have to go find the cash to cover it. 

So being realistic about when and how much you really receive and how much you still owe is vital in creating a robust cashflow forecast that is as close to being accurate as possible. 

Tip #8: Get Feedback

When you are creating your cashflow forecast you will be making assumptions and including items into your forecast which your team may have a better view on or may be able to help you improve upon. 

For example, your sales account manager may have a better view on when your major customer is likely to place their next order.  Your website tech guy may know that one of your software subscriptions can be downgraded without much impact to your service therefore saving you cash.   

Don't create your cashflow forecast in a bubble of solitude - talk to your team to see what their views are, get the assumptions you are using as accurate as possible and most importantly, write those assumptions down so you can remember how you came up with the forecast! 

Tip #9: Review Your Forecast Against Actuals

A good cashflow forecast model will help you take the predicted forecast for your business and track it against the actual performance you achieve. This means that you can track your progress and see how far off you were in your predictions.  It can also help you manage Investor expectations too. 

For example, if your cashflow forecast shows you burning through your cash in 6 months, yet so far, you've actually hardly spent any of that money, then you can share with your investors that you haven't spent it yet and can therefore run the business for an extra month - which they may be very happy to hear (...although not spending quickly enough can also be a bad sign too by the way!). 

Tip #10: Speak to Your Accountant

Your trusted ecommerce bookkeeper and accountant is the one person who can truly help you to make the right decisions when it comes to your cash flow forecasting, so make sure you speak to them if you’re not sure on how to get started or what to include. We’d be more than happy to help you figure it all out!

Make It Happen In Your Business

If you’re a growing business looking for an effortless way to keep on top of your cash, then creating and using a cashflow forecast is essential.  We are Xero specialists and we see it work in practice everyday with our clients - this accounting software package has all the tools and app integrations within the ecosystem to help you get the visibility on your numbers that you need. 

Next Steps:

• Check out your Cash Summary in Xero today - are there any surprises or cash worries that you didn't know about?
• Ask your qualified bookkeeper or ecommerce accountant to help you add on the Fluidly cashflow forecasting app to your Xero ecosystem. It's quick to do and will make a huge impact to how you view your numbers.
• Talk to your bookkeeper about creating scenarios to help you forecast and predict what might happen to your business over the next 6-12 months in terms of cashflow.  Don't be afraid to look at the scary scenarios as well as the amazing sales scenarios so that you have a balanced view on what might be possible for you as you grow.