Top 4 Cash Flow Forecasting Mistakes You Should Avoid

Businesses most attuned to their financial standing and capabilities which justify a solid cash flow statement are undoubtedly the most successful. The ability to generate revenue that exceeds investment is what differentiates the successful businesses from the ones that are not. And the sad truth is that in today’s competitive and fast-paced world, sooner or later, businesses have to get past this criteria, or else risk bankruptcy.

Top 4 Cash Flow Forecasting Mistakes You Should Avoid
The venture of forecasting cash flow statements is a very crucial part of any business’s daily operations. It allows them to predict upcoming targets to measure operational successes and failures. Additionally, it allows businesses to rectify hard to find, ‘micro-management’ issues and poor strategic/financial decision-making issues, to help create a stronger core management operation.
In this article, we shall briefly discuss the top cash flow forecasting mistakes businesses and accountants should look out for.

1. Dissimilarity in receivables and payables

Businesses should always have a solid corporate strategy behind the set minimum receivables and payables for each individual account. The actual mistake lies in the error to inflate ‘Accounts receivable’ and ‘Accounts payable’ with sales data alone. Although traditional practices dictate the same, CFOs should realize that, creating a set ‘Days Sales Outstanding’ level and actually maintaining/enforcing it delivers much better cash flow forecasting results.

2. Variable cash flow sources

Businesses may not always be aware of each and every change in tax or finance related data policies. Businesses and their accountants should always work in tandem to eliminate different cash flow sources and such discrepancies in the data flow, well ahead of each annual cycle. By doing this, businesses will greatly reduce the chances of mismatched data and other tax complications down the line. ( Recomended read: 5 Tax Saving Tips Every Business Should Know )

3.Proper reporting of finance and investment activities

For eliminating errors in this aspect of cash flow forecasting, businesses need the expertise of skilled accountants and tax advisors, adept in the standards and principles of GAAP and IAS. They can also help businesses to automate data collection in this financial by creating a strategic course of action and general policies for bookkeeping and data entry tasks.
They can also help simply the gathered data for general understanding to have a better knowledge in terms of acquisitions and disposals of long-term assets, investments. This helps businesses to gain a better understanding of non-cash investments and activities which might affect cash flow data by changing equity and borrowings.

4.Avoid income line statement errors

Cash flow forecasting is completely dependent on data highlighting the delivered income from daily business operations and errors in this stage may have bigger repercussions in the actual cash flow data. Incrementalizing line items is another common error which throws off cash flow forecasting data bu quite and extent. Forecasting data which draws variables from all aspects of financing, from pricing to volume. This way cash flow forecasting data trickles down from solid operational structures and sources and helps focus on the right issues and questions.
For businesses everywhere, it is crucial to have a proper operational strategy backing it up. But to create a solid operation strategy, businesses need the expertise of skilled accountants and tax advisors who observe and follow every industry change and trend.
Cash flow forecasting in a way helps businesses make better-informed decisions, outline a growth strategy, and allocate resources in a much better way. This allows small business the opportunity to realize and build upon its financial standing, all on their own.

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