Your Year-End Revenue Forecast Is Not a Cash Forecast
You can finish the year with a strong sales number and still enter January short on cash.
That gap matters when you are deciding whether to hire, buy equipment, increase owner distributions or fund the next stage of growth. A revenue forecast helps you understand expected business activity. A cash forecast helps you understand when money will be available to meet commitments.
Start with what you expect to collect
A job may be approved, scheduled or completed without being paid. A customer may owe the final balance while a project is waiting on paperwork, a supplement or a disputed item. Those situations belong in your planning, but they do not all belong in the same collection week.
Review the money customers owe you. Identify the expected collection date, the person responsible for follow-up and the issue that could delay payment. If a date is uncertain, reflect that uncertainty in your planning instead of treating every outstanding dollar as available cash.
Match collections to the commitments ahead
Now look at the payments coming due. Payroll, materials, subcontractors, rent, debt payments and other obligations may arrive before the customer pays.
For illustration, imagine a business expects $200,000 of customer collections during the next two months. It also has $120,000 of commitments due before most of that money is expected to arrive. The two-month total does not answer the immediate question: can the business meet its obligations in the weeks before those collections?
This is why timing deserves its own management discussion. A profitable project can still require funding while it moves through production and collection.
Separate a plan from a commitment
Before you approve next year’s spending, identify which costs are already committed and which are still choices. A signed employment agreement, an equipment order and a possible marketing campaign have different consequences if collections slow down.
Ask what happens if an important payment arrives several weeks later than expected. Would you need to postpone spending, accelerate follow-up or arrange financing? The purpose is to make the response clear while you still have options.
Assign the next action
A forecast should change what someone does. If collections are the constraint, assign follow-up and escalation. If spending is moving too far ahead of receipts, revisit the timing of commitments. If a growth plan consumes cash before producing it, evaluate the funding requirement before approving the plan.
Put a name and a date beside each action. Then revisit the assumptions when actual collections and payments differ from expectations. A forecast becomes useful when the team uses it to make decisions and update the plan.
What will we collect, and when? Which balances are uncertain? What must we pay before the money arrives? What new commitments are we considering? What would we change if collections are delayed?
You do not need another report that sits in a folder. You need a clear view of what the business can afford and an accountable plan for the decisions ahead.
NFG Consulting helps owners connect cash planning, profitability and operating decisions. Contact NFG to discuss your year-end business review.
No Excuses. Just Results.
