5 Tips for Managing Cash Forecasts

Written by Trovata Team
June 29, 2021

In our webinar, “5 Tips for Managing Your Cash Forecast in 20 Minutes,” Trovata’s CFO, Scott Harrington, reviewed five cash management practices you can utilize to better manage your company’s cash forecasts with confidence.

A leader in his field, Scott has more than 20 years of finance and accounting experience in both public and private companies. Within the last five years, he has helped fast-growing startups achieve hyper-growth.

Now with Trovata,  Harrington shares how the platform’s innovations solve many of the cash forecasting challenges he faced in some of his previous roles.

With an emphasis on having your business “adequately capitalized,” Harrington shares how “running out of cash is continually one of the top reasons startups fail early on.” 

Whether you’re an early-stage company investing in product development or marketing, forecasting your required levels of cash liquidity will empower you with the visibility and understanding to manage your cash runway. Most importantly, cash forecasting helps proactively secure your debt or equity facilities and select the right financing methods your business needs to succeed.

Harrington shared these 5 best practices he recommends following to manage your company’s cash forecasts like a boss: 

1. Operate on a 13-Week Forecasting Model

Developing, owning, and driving a 13-week cash forecasting model has many benefits. One is providing you with a deeper understanding of the timing involved with your cash flowing in and out.

According to Harrington, “You can truly better understand the linearity of your activity, and that helps you optimize your processes and policies.” This also applies to your customer and vendor terms, and payment methods as well.”

Harrington goes on to explain how “with your payment vehicles … it really helps you to better understand all the timing of those processes and policies.”

In addition, weekly cash forecasts create a “cadence for identifying issues.” This information empowers you to identify cash management issues early on. Once you’re aware of these issues, you can communicate with stakeholders and have time to course correct

Ultimately, a 13-week forecasting model will help you avoid surprises and also serve as a “strong basis for your monthly and annual forecasting” which, in turn, provides better visibility into your cash flow seasonality.

2. Know Where You Are Before the End of Each Reporting Period

Particularly helpful in the growth stage of companies, Harrington suggests that you “task yourself with knowing where you are before the end of each reporting period.” Questions to consider include:

  • How is your cash flow looking?
  • How was your cash burn trending?
  • How was your cash influx at the end of the day?

In addition to helping you avoid surprises, these questions will help you stay ahead of your period-end and communicate spending activity with leadership and investors. 

This practice, according to Harrington, drives trust because there are no surprises.

“At the end of the day, if you’re honing in and able to project three days into month end, three days into the quarter end, or even a week out, how you’re tracking to plan for cash is key to just building that trust and understanding that you know your business.” 

It is not easy to accomplish this without automation. He explains, “Automation really helps ensure the completeness, the consistency and accuracy, and even the timeliness of being able to churn that information and communicate.”

3. Pull the Story, Not Just the Numbers

You’re all familiar with getting real-time data, performing variance analysis, and crafting the story of what happened, but you should take it one step further and decipher what the financial results mean for the business.  Harrington suggests communicating “the what and the why,” when you’re reporting on crucial financial data.

This means spending your time understanding and speaking to how changes in your cash activity drive the results and how they align with key business objectives.  Harrington reminds us that forecasting isn’t only about looking forward, but also noticing where you are today and how you got there. There are many factors that can lead to greater cash inflow, and outflow.

He also stresses the importance of financial statement literacy and data analysis. You need to understand what these financial components mean for your business, so you can communicate effectively “what it means to the business, your cash runway, or your ability to meet growth objectives.”

4. Remember the Changes in Your Business and Processes

Throughout your company’s evolution, your cash inflow and outflow may change. Harrington uses the example of moving from a subscription billing model to a consumption billing model when you’re invoicing clients every month. “That’s a big game changer when it comes to how your cash inflows and outflows react,” he explains. 

As your procurement methods change, it’s essential to catch any gaps in your information and ensure your systems are talking to each other. Digitalization is key to making your financial systems run smoothly. “It’s a matter of automation. Automation empowers you to consolidate your bank data into a single source of truth and limits the multitude of data sources you’re pulling your information from.”

5. Don’t Forget Automation

Cash flow automation provides “an easy, scalable solution to not only have real-time visibility of your cash balances globally, but also automates your cash forecasting and forecasting models in real-time.” 

With Trovata, our open banking platform that aggregates your cash and banking information into one single source of truth, you gain real-time visibility into all of your bank balances and bank positions. In addition, you gain access to automated, real-time cash forecasting capabilities that help

Trovata is turn-key; no IT overhead is required and you can be up and running on your computer and mobile apps in ¼ of the time it takes other solutions on the market. You don’t have to spend countless hours manually compiling, analyzing and validating your data’s accuracy. Trovata empowers you with powerful cash insights needed to drive faster, data-driven decisions. 

Watch Scott Harrington’s on-demand webinar for more tips on how Trovata’s cash automation platform can empower you to manage your cash position, reports and forecasts with confidence.

Subscribe to Newsletter