This Podcast Is Episode Number 410, And It's About How To Make 2021 Your Contracting Cash Flow Year Nobody wants their business to fail. Although it's impossible to predict the future with 100% accuracy, a cash flow forecast is a tool that will help you prepare for different possible scenarios in the future.  What is Cash Flow Forecast? Cash flow forecasting is the process of estimating how much cash you'll have and ensuring you have a sufficient amount to meet your obligations. By focusing on the revenue you expect to generate and the expenses you need to pay, cash flow forecasting can help you better manage your working capital and plan for various positive or challenging scenarios. A cash flow forecast comprises three key elements: beginning cash balance, cash inflows (e.g., cash sales, receivables collections), and cash outflows (e.g., expenses for utilities, rent, loan payments, payroll). Building Out Cash Flow Scenario Models It's always good to create best-case, worst-case, and moderate financial scenarios. Through cash flow forecasting, you'll be able to see the impact of these three scenarios and implement a suitable course of action. You can use the models to predict what needs to happen, especially during difficult and uncertain times.  In situations where variables shift quickly, such as during a recession, reviewing and updating your cash flow forecasts regularly on a monthly or even weekly basis is highly recommended. By monitoring your cash flow forecast closely, you'll be able to identify warning signs such as declining revenue or increasing expenses. How To Improve The Accuracy Of Your Cash Flow Forecast In cash flow forecasting, your estimates are based on historical data. This means having accurate historical information is critical. Below are some tips for improving its accuracy: At the end of the week or the month, input your actual results or the cash that was received and money spent. This will allow you to identify which items you got wrong in your estimates and evaluate why you got it wrong. This analysis may lead you to place more significant issues and help you make adjustments to your assumptions. Carefully evaluate all of your assumptions. Take note that just because it's correct now does it mean that you'll get it right in the future as well. Go through everything, especially when it comes to sales, and validate it. Don't forget to include annual payments, loan payments, credit card debt payments, and estimated taxes. It's almost impossible to forecast where your business will be in longer than one year out. You'll introduce more risk and greater uncertainty the further out your financial scenario models go. How To Manage Your Construction Cash Flow Owning a small business in the construction industry can be incredibly stressful. In addition to the long days and hazardous working conditions, you have to worry about cash flow issues. It can take a long time to collect on payment from your clients or contractors who hired your business, and in the meantime, you have to pay employees, cover fixed expenses, buy supplies and pay your subcontractors.  Here are three tips for managing your cash flow if you own a small business in the construction industry.  1. Be aggressive in following up on invoices  Small businesses in the construction industry are at risk of having their clients not pay them on time. Or at all. Being too passive in collecting unpaid invoices or reminding clients when payment is due will not help you manage the money you need to pay your bills. Sending out reminders of invoices that are due can not only speed up getting you paid but also encourage clients who were considering not paying you to reconsider. Reach out to clients if necessary to discuss payment options. Even a payment schedule is better than no payment at all. The worst thing you can do is sit around and hope your client will pay you.   2. Watch for scope creep "Scope creep"...