7 Cash Flow Forecasting Challenges and Workarounds Startups Should Know

Michael Pignatelli
Jan 17, 2023

Cash flow forecasting can be tricky—it requires skills, attention to detail, and dedication. But when done right, cash flow forecasting can offer tremendous value and invaluable insight into the future of your startup business or project.

Many organizations face significant challenges while attempting this exercise, but some workarounds can help you achieve success in predicting your financial future with confidence.

In this blog post, we'll explore some common cash flow forecasting challenges and solutions for improving your forecasts' accuracy. With these tips, you'll have valuable information to make better decisions about where to allocate resources and set appropriate expectations for revenue and expenses.

Challenge #1: Not Knowing the Importance of Cash Flow Forecasts

As an owner of a startup business, at the beginning, your cash flow may be slow and manageable using manual bookkeeping and accounting. A common mistake would be sticking to this day-to-day cash flow monitoring system and not forecasting. Seeing only daily cash flow and having no visibility about your company's future income and expenses is like operating a business in the dark.

The Workaround

Understand that cash flow management is essential for all businesses, even startups. Know that with it, you can see how much income and expenses you’ll have daily, weekly, monthly, quarterly, or annually. As a result, you can use the data as the basis of your financial game plans. You can use it to decide the following:

  • When to invest
  • How much to save
  • What to do with your profits
  • How to increase your sales
  • How to minimize spending

Challenge #2: Limited Historical Data

Having limited historical data is common to startups either because owners have failed to store financial data in the past or because the business hasn’t been running for a significant period of time yet. Historical data is the most basic information needed when creating a cash flow forecast, and the absence of these numbers makes the forecast result less reliable. 

The Workaround

Despite the absence of historical data, there are still ways to get a reliable cash flow forecast. To begin, whether you lack past numbers because of a personal choice or not, it is time to invest in software and applications to help you track your business finances.

These apps and software can also help you conveniently create simulations, or before and after trials. Use the following data for your forecasts:

  • Current income and expenses
  • Any historical data available
  • Competitor data
  • Customer surveys
  • Economic, political, social, and environmental factors
  • Insights from experts

Challenge #3: Inaccurate Data Sources

The biggest enemy of a cash flow forecast is inaccurate data, which can happen when tracking income and expenses manually. Although Excel sheets are readily available (and free), they may lose your business money in the long run as human errors bring costly damages to your finances.

Inaccurate data leads to making bigger loans, being overconfident in forecasting income, making fewer investments, and saving less—all detrimental to your business growth.

The Workaround

The most efficient workaround to the data inaccuracy problem is bidding goodbye to your company's manual systems. Accept that part of growth is optimizing your bookkeeping and accounting technology so that you can track your finances better. 

Accounting software is highly automated, and you can also integrate various apps. As a result, you can minimize or even eradicate manual inputs, which can cause inaccurate data.

cash forecasting process

Challenge #4: The Absence of Interdepartmental Collaboration

If there are a couple of teams in your company, you’ll need input for their income and expenses. This task becomes a roadblock when there is no collaboration between different departments. When different teams do not practise open communication, you might get incomplete or erroneous financial data from them. Another challenge is not having an established system for workflow and data submission processes in the company. 

The Workaround

Excellent accountants and bookkeepers need to be well-versed in their tasks or have certifications and training to perform them correctly. On top of that, they should have communication skills and be team players. This is to make sure that they can connect to the various departments in your company to get the needed data. They also need to be forward thinkers to suggest and enact the best systems to make this data acquisition as smooth as possible for everyone.

Challenge #5: Unpredictable and Changing Variables

Expect that a cash flow forecast doesn’t mean you’ll get 100% accuracy, as the following variables are prone to changes:

  • Interest rates
  • Foreign exchange rates
  • Commodity prices
  • Sales taxes
  • Prices of raw materials
  • Customer payment behaviours

As a result, the final accounts receivable and payable won’t be exactly as what you forecasted.

The Workaround

The best workaround to ensure that you get the forecast closest to the truth is keeping numbers and data updated. Be in the know with the latest interest and foreign exchange rates. Know if there are changes in sales taxes and other tax dues you need to pay. If there are updates on commodity and raw material prices, they should also be reflected in your forecast. And do not forget about your customers too. Check sales trends to know when your peak sales occur.

Challenge #6: Skipping Forecasts and Actual Data Analysis

Successfully launching a cash flow forecast is not the end of the cash forecasting process, but it becomes a problem if you make it so. As we’ve learned, some variables are subject to change, so if one variable adjusts, the income and expenses will as well. If you keep on using the old data without any adjustments, your business finances will suffer these consequences:

  • It will disable you from adjusting your game plans accurately.
  • You won't be able to align your investments and spending, to your actual earnings and expenses. 
  • You won’t identify potential financial risks, so you’ll be unable to proactively stop them from happening.

The Workaround

The best way to do a cash flow projection and actual cash flow analysis is through the help of software. An accounting software already has the forecast and the latest data of your business stored. They also have templates to show a comparison of current cash flow and forecast data. With software, generating reports is easier, and you can regularly analyze data to see if you need to optimize your cash flow plans and strategies.

cash forecasting

Challenge #7: Lacking a Qualified Forecasting Team

Creating and maintaining a cash flow forecast is a major task for every company. Not having a dedicated team to handle it makes report generation impossible. And if even one is created, there wouldn’t be anyone to update it and let you know the latest data analysis results. Like a snowball, a series of the above mentioned challenges will surely accumulate.

The Workaround

There are plenty of choices a company can go for to hire a bookkeeper and accountant to handle forecasts. An in-house accountant is the traditional choice, but you can also choose to work with remote team members and freelancers. With these choices, building a dedicated team to handle forecasting becomes easier.

Your finance team will ensure your business has a defined forecasting process, an efficient way to acquire and manage data, and the best software to make forecasting cash flow easier and more accurate.

Cash Flow Forecast Solutions by Unloop

With cash forecasting being so important to any business’s success, startups must understand common challenges and how to avoid them. We hope that these common challenges startups face when forecasting cash flow and some workarounds have helped you. At Unloop, we have seen firsthand how important cash flow forecasts are to businesses. Proper forecasts can help businesses stretch their budgets and stay ahead of payments. With that in mind, take advantage of our forecasting services to experience the power of having a reliable and secure forecasting platform at your fingertips. Call us today!

Sign up for weekly tips

Our newsletter is packed with the latest and greatest in ecommerce finance.

Stop guessing

Know exactly where your ecommerce business stands financially.
+1 877 421 7270
228 Park Ave S #82849
New York, NY 10003
United States
7676 Woodbine Ave #2
Markham, ON L3R 2N2
Canada
About unloop

Unloop is the first and only accounting firm exclusively servicing ecommerce and inventory businesses in the US and Canada. With the power of people and technology, our team dives deep into COGS and inventory accounting.. You are paired with a dedicated bookkeeping team that prepares accurate financial statements, financial forecasts, and can also pay bills or run payroll for you. Come tax time, everything is organized and ready to go, so you don't need to worry. Book a call with an ecommerce accountant today to learn more.

cross