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What are the most effective ways to use rolling forecasts to manage cash flow?

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Managing cash flow is one of the most critical tasks for any business, especially in uncertain times. Cash flow reflects the inflow and outflow of money from your operations, investments, and financing activities. To plan ahead and optimize your cash flow, you need to use rolling forecasts, which are dynamic and flexible projections that update regularly based on the latest data and assumptions. In this article, you will learn what are the most effective ways to use rolling forecasts to manage cash flow and how they can help you improve your decision making, performance, and resilience.

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1 What are rolling forecasts?

Rolling forecasts are a type of financial forecasting that extends the horizon of your budget or plan by adding a new period at the end of each cycle. For example, if you have a 12-month rolling forecast, you will update it every month by adding a new month at the end and dropping the oldest one. This way, you always have a 12-month view of your expected cash flow, regardless of the fiscal year or quarter. Rolling forecasts are different from static or annual forecasts, which are fixed and only revised periodically.

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2 Why use rolling forecasts for cash flow?

Rolling forecasts for cash flow have several benefits over traditional forecasting methods. First, they allow you to adapt to changing market conditions, customer demand, and internal factors that affect your cash flow. You can incorporate new information, assumptions, and scenarios into your forecast and adjust your strategies accordingly. Second, they enable you to monitor your cash flow performance and identify any gaps or variances between your actual and projected cash flow. You can then take corrective actions or exploit opportunities to improve your cash flow position. Third, they help you align your cash flow goals with your strategic objectives and communicate them to your stakeholders. You can use rolling forecasts to set realistic and achievable targets, track your progress, and report your results.

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Surender K.

Sr. Director of Finance, Fareportal Inc
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In today's evolving business environment staying ahead of the curve is paramount. Having a rolling forecast in place equips us with the foresight needed to navigate through these challenges effectively and helps us manage our cash efficiently. Particularly industries characterized by seasonal fluctuations. A rolling forecast for cash flow provides us with the insight required to strategize and adapt swiftly. It allows us to anticipate shifts in demand, optimize resource allocation, and plan for contingencies, ensuring that we are always prepared to seize opportunities. Employing a rolling forecast for cash budget, we empower ourselves to proactively respond to changes in the business landscape, align our strategies with the dynamic market.

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3 How to create rolling forecasts for cash flow?

To create rolling forecasts for cash flow, you need to follow a few steps. First, you need to define the scope, frequency, and horizon of your forecast. You should consider the level of detail, the time span, and the update cycle that suit your business needs and resources. For example, you may want to forecast your cash flow by product line, by month, and for the next 12 months. Second, you need to collect and analyze the data and assumptions that drive your cash flow. You should use reliable and relevant sources of information, such as historical trends, market research, customer feedback, and industry benchmarks. You should also test different scenarios and sensitivities that may affect your cash flow, such as changes in sales volume, price, costs, or exchange rates. Third, you need to build and update your forecast model using a tool or software that allows you to automate and streamline the process. You should use formulas, functions, and features that enable you to manipulate and visualize the data and assumptions easily. You should also create a dashboard or report that summarizes and highlights the key aspects of your forecast, such as the cash flow statement, the cash flow drivers, and the cash flow variance.

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Surender K.

Sr. Director of Finance, Fareportal Inc
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To initiate a rolling cash flow forecast, set up a spreadsheet with : dates, starting cash balance, inflows, outflows, and ending cash balance. Gather historical data on cash inflows (e.g., sales, loans) and outflows (like expenses, debt payments). Identify pivotal drivers, such as sales volume and expenses. Make prudent assumptions about future variables like sales growth and payment terms. Project cash inflows and outflows based on these assumptions. Cal end cash balance by using total outflows and total inflows. Update the forecast as time progresses, replace projections with actuals and adding new periods. Regularly review and adjust. Finally, employ the forecast to guide decisions on spending, financing, and investments.

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4 How to use rolling forecasts for cash flow?

Using rolling forecasts for cash flow requires more than just creating and updating them. You need to use them as a basis for decision making, performance management, and risk management. To do this, you can compare your actual cash flow with your forecasted cash flow and analyze the reasons for any differences. Variance analysis can measure and explain the impact of each cash flow driver, while trend analysis can identify patterns or anomalies over time. Additionally, you can evaluate your cash flow performance and progress against strategic goals and targets with KPIs and metrics. Benchmarks and standards can also be used to compare your cash flow performance with others in your industry. Lastly, you can use scenario analysis and contingency planning to identify risks and opportunities that may affect your cash flow, as well as mitigation strategies and action plans to reduce or eliminate negative effects or enhance positive ones.

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5 How to improve your rolling forecasts for cash flow?

To improve your rolling forecasts for cash flow, you need to continuously review and refine them based on the feedback and results you get from using them. To enhance the quality and accuracy of your forecasts, involve and collaborate with relevant stakeholders in the forecasting process. This includes soliciting their input, opinions, and expectations and incorporating them into your forecast, as well as communicating and sharing your forecast with them. Additionally, simplify and standardize your forecast model and process by using templates, formats, and guidelines that are consistent and easy to follow. Validate and verify your data and assumptions by checking their sources, accuracy, and completeness. Lastly, update and revise your forecast regularly by using triggers, alerts, or schedules that remind you to refresh your forecast. Rolling forecasts for cash flow are a powerful tool that can help you plan ahead and optimize your cash flow. By using them effectively, you can improve your decision making, performance, and resilience in any business environment.

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6 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?

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Ted Belinky

CFO | Chief Financial Officer | Private Equity | SaaS | Cloud | Software | Services | M&A | Board Member | Executive Coach | MBA
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Incorporate sensitivity analysis as a pivotal element of effective rolling cash flow forecasting. Build in internal and external factors that influence cash flow. By understanding the impact of variables like sales volume and economic conditions on cash flow, businesses can make informed decisions, allocate resources wisely, and adapt to changing circumstances. This iterative approach ensures organizations remain agile and well-prepared.

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What are the most effective ways to use rolling forecasts to manage cash flow?

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1 What are rolling forecasts?

2 Why use rolling forecasts for cash flow?

3 How to create rolling forecasts for cash flow?

4 How to use rolling forecasts for cash flow?

5 How to improve your rolling forecasts for cash flow?

6 Here’s what else to consider

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