How to Forecast Your Way To More Cash Flow

Octavia Conner

By Octavia Conner

Tags: All, Cash Flow

Operating a consulting firm is challenging enough. On top of the daily hurdles, when you add the tasks needed to maintain a positive cash flow, it can be exhausting.

Most consultants know that they need to monitor their cash flow and forecast consistently. However, it can be intimidating to begin the process.

In this episode, I will deep dive into a proven plan that will enable consultants not only to earn more money but KEEP more money in their firm, thereby eliminating all money worries FOREVER!



One proven way to eliminate money worries as a consulting firm owner is to manage your finances proactively. But what does it look like to proactively manage your finances?


Well, first and foremost, you must get ahead of your cash flow problems and eliminate them from the root. 


To begin, I need you to understand one crucial thing.


Profit and Cash are not the same.

Profitable companies can run out of cash if they don't know their numbers and are not adequately managing their cash and profits.


Cash is the money that flows in and out of your firm in several different ways. Cash Flow Forecast


Cash-in can come in the form of revenue, grants, loans, investments, etc. 

Cash-out can occur as expenses paid, owner's salary, credit card payments, and other liabilities. 


Profit is what's left over after you subtract your expenses from your revenue earned. Often, a business will spend money that does not appear as an expense on its profit and loss statement. Therefore they will have something I call - paper profit. 


In addition, a consultant will earn revenue, and as a result, generate paper profit. However, if the consulting firm owner never collects the funds or they overspend, the firm will also experience cash flow problems.


Based on the above examples, you can clearly see how the firm appears profitable, but they have underlining cash flow difficulties. 


Therefore what I need you to understand is that 

Cash is your firm's SUPERPOWER!


Positive and Negative Cash Flow


Positive cash flow is when the amount of money entering your firm is greater than the amount of money existing.


Negative cash flow is when more money is leaving your firm than the amount that's entering.


These are the reasons why a cash flow forecast is so important. A cash flow forecast helps you proactively predict how much money you will have each day, week, or month in your firm.

The goal of a cash flow forecast is to enable you to maintain a positive cash flow at all times.

As the firm owner, you need to focus on not only earning more money but KEEPING money in your business.


What Is A Cash Flow Forecast? 

A cash flow forecast is a plan that shows how much money a business expects to receive and pay out over a given period.


A cash flow forecast is different from a P&L statement because the P&L only shows the revenue earned and the cost incurred. It does not indicate if and when the money entered and exited in the firm's bank account. 


A cash flow forecast is part of your financial plan. Having a financial plan coupled with a cash flow forecast eliminates experiencing financial anxiety.




How To Prepare A Cash Flow Forecast

There are several software applications that you can use to prepare and maintain a cash flow forecast. For this episode, I am going to show you a quick manual way.


When forecasting your cash flow, you want to think of the three scenarios.

  1. Best Outcome
  2. Mid Outcome
  3. Worst Outcome 

The best outcome will show all payments received on time from current clients, receiving payments from new clients, and paying all bills on time.


The worst outcome could be if 50% of your clients paid late or not at all. What bills will you be able to pay? Will you have enough money to cover payroll and receive an owner's salary. 


The mid outcome is somewhere in between. 


Please remember that a cash flow forecast predicts the firm's future financial position based on anticipated payments and receivables. 


Key Takeaways 

  • You want to analyze how each decision you make over will positively or negatively affect your bank balance
  • Weeks in which your bank balance turns red, you need to make adjustments right now to fix it
  • Your Total Money Out should ALWAYS be less than your Total Money In

In the comments below, what other key takeaways can you identify from creating a cash flow forecast?


Be sure to join me live Monday mornings at 11:00 am. 


This is Octavia, the CFO for Consultants! Until next time - Say Yes To Profits! 


Download your Plug-and-Play Cash Flow Forecast below.

Cash Flow Forecast