The importance of cash flow management and forecasting

When a business looks to scale, it is important to find the right balance between capitalising on opportunities, by investing any surplus cash to try to grow revenues, and minimising the risk of unforeseen cash calls, after all it can be said ‘cash is king’. 

By accurately forecasting cash flow, a business can map out a clear picture of expected receipts and payments over a given period. This allows it to identify potential shortfalls and plan accordingly, it can also include measures such as cutting costs via the available levers, raising additional funding, or adjusting growth plans. 

High-growth businesses typically face fluctuations in revenue and expenses due to variables including dynamic markets, investments in R&D, marketing, talent acquisition, rapid expansion, and market uncertainties, all of which make forecasting challenging. It is good practice for teams to prepare a rolling 13-week cash flow forecast, allowing early identification of any pinch points and finding suitable solutions to work around them. Attention to detail is essential, and it’s crucial to exercise a level of caution in the assumptions used. 

By comparing actual cash flow with the forecast, businesses can detect any deviations and make necessary adjustments to their plans. Regularly reviewing and updating cash flow forecasts ensures that a company can predict their finances with some precision and make more informed strategic decisions. For example, if there is a specific lag with certain customers when settling their accounts, a concerted effort should be made to implement effective credit control procedures by changing trading terms. 

Crucially, this also provides a level of confidence for potential investors in both the management team and the business model. Smart and cautious cash flow management is essential for any high-growth business that wants to succeed over the long term. By forecasting, monitoring, and implementing strategies to improve cash flow, a company can ensure they have the resources to deliver their business plan. Management teams will then have the freedom to pursue their objectives, underpinned by the solid foundations that cash flow governance provides, and can reduce any potential distractions caused by a shrinking cash runway.

Business success requires a team effort where individual strengths and robust financial discipline combine to create a greater whole. We help businesses implement a strong finance function to ensure that they are equipped for the growth journey ahead. If you would like to find out more about how Maven could help you realise the potential of your business, please get in touch on funding@mavencp.com.