Income and Cash Flow Forecasting Is Both Art And Science

Forecasting Business Cash Flow And Income Has A Lot To Do With Both Your Experience and Intuition

Yes,  cash flow and income forecasting can be a pretty mechanical process as all the numbers have to be entered and tabulated and assessed.  But when you’re looking into the future, the numbers also have to be projected, guessed at, and pulled out of the air to some extent.

That’s where both your experience and intuition comes into play and it will amaze you how both improve your accuracy over time.

When I was managing an annual cash flow that was well in excess of half a billion dollars annually, I got pretty good at estimating where the ship was going to dock and how we were going to hit “the number” decreed from the ivory tower by people so removed from what was going on they may have been on another planet, or at least it seemed like that some times.

I had a large staff, reports, and systems out the wazoo, so you would think this was all highly mechanical, which in many ways it was.

But when it came down to determining which actions to take in the next 30 -60-90  days to make the overall cash flow and income projections work, it always came down to my estimates and guesses of how certain items, both inflows and outflows would play out.  Basically my estimates or key assumptions of how things would play out in real time.

And in the real world, you will always have to guess because there’s always unknowns, curveballs, and goof ups to deal with.

So why go to the trouble of creating cash flow and income forecasts if you’re just dreaming it up anyway?

You do it because through the course of continually going through the exercise of reviewing everything that matters to your targeted outcome and summarizing each component down to time and dollars, you develop the ability to accurately estimate how everything will unfold.

Intuition is nothing more than your minds ability to draw on lots of self absorbed data and apply it to a repetitive ritual that generates a realistic result of what is yet to occur.

The more you feed your brain with the key measurements of the business and the more you go through the assessment cycle, the more accurate your guess work will become.

And in many ways, this is the secret of some of the world’s most successful people who always seem to make the right decision most of the time or when it matters most.  They have spent, in many cases decades, feeding their own super computer all sorts of relevant data about their business, competitors, the market, the economy, and anything else that could have an impact on what they do.

When you’re field of vision is wider than your competitors, when you can instantly see and assimilate relevant information into the right decision most of the time, then you have developed superior intuition.  And by acknowledging this to yourself and utilizing it to your benefit, you are practicing both art and science to achieve a greater outcome.

Back in the corporate world, there were only four days in the year that meant anything… the end of each fiscal quarter.  And everything that took place between those dates was to achieve the quarterly target that lay just ahead.

People used to ask me what it was like to come up with the plan to get to the number and then manage to it.  Because everything was such a moving target, moving at real world speed, I would say it was like trying to throw a brick through the open window of a speeding car and having it go right through the car without hitting the driver as it went out the other side.

But every quarter, I hit the number.  I can’t say it got a whole lot easier, but as time when on,  I made better plans to get to the results, as more and more things came into my field of view.

As a business owner or manager, you may view forecasting as a waste of time or a use of time you don’t have.  But you need to find the time to work it into the mix for by so doing, you will greatly expand your intuition and become much more accurate in your decision making without even realizing why.

You don’t necessarily have to do it all yourself, but being involved in the process can create a powerful benefit to you that will leave your competition scratching their heads when you always seem to be one step ahead of them.

About the Author Brent Finlay