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<h3>What you&#8217;ll learn</h3>


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<li>Why accurate cash flow projections are critical for small businesses</li>
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<li>Tips to improve the accuracy of your cash flow projections</li>
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<li>Steps to create a cash flow forecast</li>
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Many businesses are vulnerable to cash flow issues arising from late or nonpayment—particularly those with fewer clients and limited savings.


In fact, a U.S. Bank study found that <a href="https://www.fundera.com/blog/small-business-statistics#source">82% of failed businesses</a> listed cash flow problems as a major factor in their downfall. So how can you prevent your business from making the same mistakes? Let’s start with understanding the role cash flow plays in overall financial health.


<h2>Why is cash flow important?</h2>


As philanthropist David Tang once<a href="https://thelightmag.com/cash-flow-management/"> said:</a> “The three most dreaded words in the English language are “negative cash flow.”


Cash flow refers to the movement of money into (via revenue) and out of (via expenditures) your business. Positive cash flow means you have enough money coming to your business to cover outstanding expenses.


Making and monitoring accurate cash flow projections is crucial. By forecasting your cash flow accurately, you can make better decisions for your business and grow in a calculated, responsible way.


Beyond day-to-day cash flow, you also need to think about your long-term cash flow. This is especially important if you&#8217;re looking to scale your business.


For example, let&#8217;s say you want to expand your product line. You&#8217;ll need to invest in new inventory, which will cost money upfront. However, if you don&#8217;t have enough cash on hand, you may have to put your expansion plans on hold. This pause could set back your business growth significantly.


<h2>How to set up cash flow predictions</h2>


There are a few different methods you can use to predict your cash flow. The most important consideration is to be as accurate as possible with your assumptions and calculations.


Follow the steps below to prepare a strong forecast.


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<li>Choose a timeframe: The first step is to choose the timeframe you want to forecast. It could be a month, quarter, or year. If your business is just starting, it&#8217;s recommended to start with a shorter time frame.</li>
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<li>Identify sources of income: Next, you need to identify all the sources of income for your business. This could include sales revenue, interest and dividends, investments, and grants.</li>
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</ul>


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<li>Estimate income: For each source of income, estimate the amount of money you&#8217;ll bring in during your forecasting period. To be safe, it&#8217;s always best to err on the lower side when making these estimates.</li>
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</ul>


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<li>Estimate expenses:  Now, it&#8217;s time to list out all your expenses. These could include inventory costs, rent, salaries, marketing expenses, and utilities.</li>
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<li>Start <a href="https://gohopscotch.com/blog/budget-vs-forecast">forecasting</a>: Begin by estimating your total income for the timeframe you&#8217;re forecasting. Then, subtract your total expenses from this number. This calculation will give you your net cash flow for the timeframe.</li>
</ul>
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</ul>



<h2>Ways to accurately predict cash flow</h2>


When you&#8217;re creating a business forecast, there&#8217;s one important thing to keep in mind: you can never be 100% accurate with your predictions.


There will always be some uncertainty when forecasting your cash flow. That&#8217;s because there are often a lot of variable expenses when running a business. For example, you may not know exactly how many sales you&#8217;ll make next month. Or, you may need to make an unexpected purchase if a piece of equipment breaks.


With that said, there are still ways to improve the accuracy of your cash flow projections:


<h3>Compare budgeted vs actual</h3>


One of the most reliable ways to fine-tune your cash flow projections is to compare your budgeted numbers with your actual gross revenue.


Let&#8217;s say you budgeted for $20,000 in sales next month. But, when the month is over, you only generated $15,000 in revenue. This discrepancy will give you a better idea of how accurate your initial predictions were.


You can then use this information to make more informed assumptions in future forecasts.


<h3>Update your projections regularly</h3>


Your business is constantly changing and evolving. So it&#8217;s important to update your cash flow projections regularly.


For instance, perhaps a disruption in your supply line has caused your inventory costs to go up. If you don&#8217;t update your projections, you might end up making purchasing decisions based on inaccurate data.


By keeping your forecasts current, you can ensure that they always reflect the best information.


<h3>Rely on tools when possible</h3>


There are a lot of different cash flow forecasting tools available today. They can be a big help when it comes to making accurate predictions.


Accounting software, for example, can track your income and expenses in real time-time. This information can then be used to generate more accurate cash flow projections.


<h3>Create projections for different scenarios</h3>


When forecasting your cash flow, it&#8217;s always a good idea to examine different scenarios. Look at your short-term, medium-term, and long-term prospects. Then, create a projection for each one.


Consider how unexpected factors may affect your cash flow. For example, you could create a best-case scenario, where everything goes according to plan. Or, you could create a worst-case scenario, where one of your main sources of income falters.


This will help you develop strategies that can be deployed in good or poor economic conditions and course correct as needed for optimal business performance.


<h3>Leverage Hopscotch Flow</h3>


<a href="https://gohopscotch.com/hopscotch-flow/">Hopscotch Flow</a> is the perfect tool for small businesses and freelancers who want a cash flow safety net. This feature allows businesses to get paid on time even if clients pay late. Simply Flow an invoice to unlock outstanding revenue immediately. Always know when money will hit your account and supercharge your cash flow as needed.


The best part about Hopscotch Flow is that it simplifies financial forecasting, giving you more time back to run your business.


<h2>Make better cash flow predictions with Hopscotch</h2>


If you&#8217;re looking for a way to improve the accuracy of your cash flow predictions, Hopscotch is the perfect solution.


Hopscotch helps you get paid faster, so you always have an up-to-date picture of your cash flow. It’s free to set up an account and start transacting, even with clients and vendors who don’t have an account.


Learn how Hopscotch can<a href="https://gohopscotch.com/"> make accepting &amp; sending payments easier</a> for your business and<a href="https://app.gohopscotch.com/register"> sign up</a> today to experience instant, fee-free payments.

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