Cash flow forecasting: is it really a must?

Does every single company need to do cash flow forecasting – or can some skip it?

At Tailwindapp.eu: Simple & Easy Cash Flow Forecasting we have been explaining the benefits of cash flow forecasting a lot and have built an automated cash flow forecasting tool that allows to be in control by spending just 5-10 minutes per week. So you probably expect us to scream “no exceptions – everyone should do it”.

But even we admit that there are some scenarios when it is ok to skip cash flow forecasting. The trick is that they only apply for very few companies because they require either a substantial cash reserve or extreme flexibility on how you can adjust your expenses.

Scenario 1: 6 months + no investments

If your company has cash reserves worth 6+ months of your expenses and does not plan substantial investments such as entering new markets or developing new products – then you can skip the forecasting, keep an eye on your actual (historical) cash flow and make the key decisions based on that.

By doing so, you might miss out on opportunities to earn extra interest on your cash reserve as you won’t know how much can you put aside and for how long. But some business owners are OK with that.

Scenario 2: you can easily adjust your expenses

If your company can achieve substantial cost reductions almost instantly or delay outgoing payments as and when needed without suffering reputational damage or being sued for insolvency, you can also skip cash flow forecasting.

For example, if the only employees of the company are its founders and their salaries can be delayed as and when needed. That is, the founders have other income or savings to rely on.

All other companies are better off by forecasting

If one of the above scenarios applies to your company – great. Having done 200+ services firms recently we have learned that less than 1 in 10 companies have such privilege. And many of such companies are forecasting their cash flows nevertheless as they have found it is very useful in helping avoid problems instead of trying to fix them.

When we interviewed the entrepreneurs who skip cash flow forecasting for now, vast majority said that they do so not because they believe cash flow forecasting is useless. They skip it only because it takes so much time with the tools that were available to them (in most cases tool choice was limited to spreadsheets).

We solved that problem by building Tailwind, check out the demo: https://tailwindapp.eu. Thanks to visualization, automation and super simple modelling, 5-10 minutes per week will be sufficient to remain in control!

So, yes – some companies can indeed afford to skip cash flow forecasting. But is your business really among them? Or would you prefer to be in control?