If you are still small and short-term forecasting is something you need to do, you can use a Xero add-on such as Float to do this.Īs your company becomes more established, you should be doing long-term financial forecasting instead. To forecast correctly, you’re going to need to assign – for each transaction – your forecast of when they’ll be paid. Imagine tracking individual transactions when you have a few hundred a month. The problem with this is that it’s impossible to scale. This focus is helpful if you’re a startup or very small business with just a few transactions happening weekly and you are planning your incomings and outgoings to keep your head above water. The pros and cons of short-term forecastingĪlso known as transactional cash flow forecasting, this may see you targeting cash over the coming weeks at a more transactional level (receipts and payments). Long-term forecasting focussing on the overall health of the business.Short-term forecasting focussing on transactions at a granular level.While I agree that cash flow forecasting is really important for a business, let me clarify the kind of forecasting I’m talking about. One late payment from a client, for instance, and your calculations have to be updated. It’s also very time-consuming because daily changes to your situation have to be inputted manually. You may have been using a spreadsheet to try to predict future cash flow, which can get very clunky once the number of transactions builds up. Without a good forecasting tool, getting to grips with your cash flow is going to be an uphill struggle. Yes, you can look at your historic cash, over any period you like, but Xero won’t help you predict what’s going to happen next month, or a year from now. Xero handles your accounting very well, but it doesn’t do much in the way of cash forecasting. Let’s take a look at how cash flow affects different types of business and how forecasting can help you make better decisions. But this is a complex area that even experienced managers don’t always understand. Cash is what keeps business owners up at night, what can stop you from trading, and the main reason you might go bust. In younger companies, cash flow is typically more important than profitability.
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