9 Cash Flow Forecasting Tips For Better Cash Flow Management

This guest blog post was written by Bean Ninjas, who specialize in online bookkeeping solutions for digital and e-commerce entrepreneurs.

Did you know that 81% of eCommerce businesses doing more than $1 million in annual revenue have completed at least one cash flow forecast?


This is something we discovered when we conducted our inaugural eCommerce Recession Impact Report.

What is cash flow forecasting?

Cash flow forecasting is like having your own crystal ball that allows you to predict how much money you are making and will have on hand to spend in a given time period. By understanding how your cash flow is likely to change you can make sure that you’re able to maximise your profit and minimize your risk.

Most cash flow forecasts consist of at least three different models – best, moderate, and worst-case scenarios.

9 Tips To Improve Cash Flow Forecasting

Whether you are looking to create your first or 70th cash flow forecast, we’re sharing 9 tips to help you create better cash flow forecasts.

1. Include leading indicators in your forecasting

Leading indicators are metrics that look forward and can be used to spot early growth trends before they happen.

Some examples of leading financial indicators to pay attention to when building your cash flow forecast are new customers and eCommerce conversion rates.

2. Account for lagging indicators

On the other hand, lagging indicators are the metrics that show what actually happened.

The best way to understand the difference between leading and lagging indicators is to think about driving a car. All the traffic signs that you see out the open road in front of you would be your leading indicators. On the flip side, anything you see behind you from your rearview mirror would be your lagging indicators.

Some examples of lagging indicators are revenue, profit, and customer lifetime value.

3. Update your P&L

The key to having more reliable cash flow forecasts is accurate, timely data. If your books haven’t been updated in 6 months or your P&L (profit and loss) report – also known as an income statement – is a mess, then you’ll be creating forecasts on inaccurate data. This will create problems since you can’t rely on historical data.

For example, if you haven’t been entering in your expenses consistently for the last six months, you won’t be able to know how much money your business is actually making or if you are even profitable.

4. Be conservative with your forecasts

Having accurate books is a necessity for creating detailed cash flow forecasts. However, it is still a good idea to be conservative with your models.

This applies both to overestimating your costs and expenses and underestimating revenue.

5. Consider when cash will hit your bank account

One of the biggest mistakes that new entrepreneurs make is underestimating the impact of timing in cash flow planning.

The first part is knowing your revenue numbers. The second key area is knowing when the cash is going to hit your bank account.

Let’s use an example.

You might have just closed a big wholesale order. However, if you need the money now to buy a bunch of inventory to fulfill the order, but the net payment terms are 90 days, you are going to run into problems.

This is why timing is everything in eCommerce and especially as it relates to inventory planning and management.

6. Make sure to account for paying taxes

There are two certainties in life – death and taxes. You know that you have to pay taxes each year. So, it is important to account for your expected tax burden in your cash flow forecast.

7. Document your assumptions

When you create your first few cash flow forecasts, you are going to have your own biases and assumptions. That’s perfectly natural. However, it is important to write down your views. Then, regularly revisit them to see if they hold true.

8. Review and adjust your cash flow forecasts

Cash flow forecasts are living financial reports. You can’t create them once and expect it to hold true for months at a time. This is why we recommend revisiting your forecasts each month and updating the actual numbers.

In addition, it helps to create new forecasts quarterly.

9. Pay attention to trend lines

This brings up to the final and most important point. The trend is your friend.

The actual numbers in your forecast are less important than the overall trends. You want to pay attention to the trends and use that information to make business decisions.

For example, if your sales spike in Q4 around the holiday shopping season, you’ll want to account for that in your cash flow forecast.

In sum, these are 9 tips to help you create cash flow forecasts. This can help you make better business decisions based on data and historical performance instead of relying on intuition.