A bookkeeper managing a business’s finances.

Bookkeeping Help: How to Forecast Cash Flow with Your Bookkeeper

Maintaining a predictable cash flow is crucial to stability and avoiding stress. Although bookkeepers are not professional financial planners, they can use their intimate knowledge of your transactions to assist business cash flow management. In fact, I never forecast cash flow without bookkeeping help – their insights are too valuable to ignore. 

By leveraging the detailed financial data they maintain, you can create a 13-week cash flow forecast that provides valuable insights into your upcoming cash obligations and helps you make better-informed decisions.

A Bookkeeper’s Role in Forecasting

Understanding the strengths of bookkeepers and bookkeeping services will ensure you know the limits of your cash flow forecast. These strengths include:

  • Intimate transactional knowledge: Bookkeepers are excellent at tracking the inflow and outflow of cash through invoices, bills, payroll, and debt service. 
  • Detailed and accurate: Good bookkeepers are meticulous, making them excellent at getting every bill accurate to the penny, and poor at thinking outside the box or imagining what could be (instead of what is.)
  • Process-oriented: Bookkeepers are excellent at executing well-defined processes, but often struggle to invent new processes.

All combined, bookkeepers are great assistants for 13-week cash flow forecasting. These forecasts align well with their strengths including:

  • Extremely detailed and accurate
  • Highly transactional 
  • Rigorously executed in the same processes every week
  • Short-term focused

Avoid long-term strategic planning with your bookkeeper if they are not educated in such tasks. Check out our blog on 3 Cash Flow Optimization Techniques for Small Businesses for strategic ways to improve your cash flow.

How to Forecast Cash Flow with Your Bookkeeper

You’ll need to bring the process to your bookkeeper and assign them very specific responsibilities to ensure success. These steps and responsibilities include:

  • Code All Transactions (bookkeeper). Start by ensuring your bookkeeper has accurately coded all bills, invoices, and transactions up to the forecast date. Make sure due dates are accurately reflected and each payment is correctly paired with its corresponding invoice or bill.
  • Create a new 13-week cash flow (bookkeeper). Every week, a new forecast should be generated. This is typically done by copying the old one and saving it as a new name.
  • List All Accounts Receivable (AR) Due by Week (bookkeeper): This includes customer payments that are expected to come in and will directly impact your cash inflow.
  • List All Accounts Payable (AP) Due by Week (bookkeeper). In addition to AR, it’s essential to understand your upcoming obligations. Have your bookkeeper compile a list of payments due to suppliers, vendors, and service providers on a weekly basis.
  • Add other recurring payments. To make your cash flow forecast complete, include other financial obligations such as:
    • Payroll
    • Owner’s draws
    • Debt repayments
    • Credit card payments. 
  • Update the sales forecast for non-invoiced revenues. This should include:
    • Unbilled work in process
    • Backlog sales, and
    • Blue sky sales (deals not yet signed.)Update financing events such as draws on the line of credit, owner loans, and upcoming equity funding.
  • Both bookkeeper and owner/manager
  • Meet weekly to review the forecast. Once all data is compiled, you should review the forecast together, focused on ending cash balances for each week. This will reveal potential shortfalls, allowing you to make adjustments by pushing or pulling payments to optimize your cash flow.

Cautions about cash flow forecasting.

A 13-week cash flow does not replace annual budgeting or 12-month forecasting. In fact, best-in-class businesses avoid short-term cash forecasting entirely by having excellent 12-month forecasting and sufficient capitalization. 

Remember that bookkeepers are not CFOs – do not expect them to advise on general small business financial management strategies. Doing so sets them and your business up for failure. Consult with a senior finance professional or board member to develop long-term cash flow strategies.

By leveraging the precision and data management skills of your bookkeeper, you can gain a clearer picture of your short-term cash flow through a 13-week forecast. While this approach won’t offer insights into your long-term financial outlook, it’s a practical tool for ensuring financial stability in the near future. Understanding your cash inflows and outflows with this level of granularity will empower you to make informed decisions and keep your business on solid financial footing.

This article was written by a CFOshare employee with assistance from generative AI for rhetoric, grammar, and editing. The ideas presented are a combination of the author’s expertise, original ideas, and industry best practices.

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