What’s in the pipeline? 4 Tips to accurately project incoming cash flow

anagentile's picture
779
BFF Manager
06/05
2015

What’s the most common reason that businesses go under? Without a doubt, it’s cash flow problems. Most businesses run on tight margins. If cash doesn’t come in when it’s expected, that can cause a serious financial crisis, especially if there’s not a safety net to fall back on.

If you’re like most business owners, you probably obsess over your cash flow projections. What’s in the pipeline? And when will it hit? What’s the confidence level in that invoice or piece of business?

tips to project incoming business cash flow

Every business owner asks these questions on a regular basis. However, asking the questions often isn’t enough. You have to have the right data and mindset to get honest answers and make accurate projections. One bad projection could be enough to sink your business, or to at least force some serious cutbacks.

Making accurate cash flow projections is as much about discipline like anything else. You have to have the discipline to not get caught up in your own optimism. You have to be realistic about the risks your business faces. And you also need to have the right data to inform you opinions and projections.

Try implementing the following four tips. You’ll likely find that they make your projections safer, if not more accurate. That will help you avoid danger from the next cash crunch.

Plan for the worst. Hope for the best.

If you’re a business ownership veteran, you’ve probably learned this lesson the hard way. Still, it’s worth repeating. Always take the pessimistic view when you’re forming your cash flow projections. Assume that clients will take as long as they can to pay their invoices. Assume that at least half of your surefire deals will fall through.

Stuff happens. I’m reminded of a website developer I once knew who landed an ongoing contract for work with a software company. He had a good relationship with a marketing manager at the company. Little did he know that she hated her job. When she abruptly quit, the company canceled all the contract positions that she had arranged. The monthly revenue he had projected went out the window just like that.

You probably have similar experiences where a surefire sale, deal, or contract goes up in smoke without warning. Just because it seems like a lock to you doesn’t mean it is to your client. Diversify your cash flow streams and prepare with the mindset that any piece of business is vulnerable.

Don’t take your sales team’s word for it.

Far too many business owners rely on their salespeople for revenue projections. It’s easy to understand why. After all, your salespeople are on the front lines. They’re working with prospects. They’re closing deals. Who better to know what’s in the pipeline than your sales team?

Here’s the problem with placing too much faith in your sales team. While they may have a sincere interest in your success, they have a much greater interest in self-preservation. When you ask them about their pipeline, their guards go up. They wonder why you’re asking and whether you’re analyzing their performance.

One of two things often happens in these scenarios. The smarter salespeople will temper expectations. They’ll downplay whatever they have in the pipeline so they come out looking good when the business comes in.

Others, though, won’t think that far ahead. They’ll tell you what you want to hear in the form of overly-optimistic assessments of their pipeline. They may tell you that certain deals are a sure thing or that they know a client will pay their invoice by a certain date.

There’s nothing wrong with getting your sales team’s input. In fact, you should get their input. However, you should also take their input with a grain of salt. Document who told you what and whether their projections held firm. Over time, you’ll get a feel for whose projections you can trust and whose you should question.

Get a CRM - and make your team use it.

One way to get more reliable sales projections from your sales team is to have them use a contact relationship manager or CRM. CRM software has been around for a long time. However, many companies still operate without one. Instead, their salespeople devise their own contact management systems, which could be with file folders, Excel spreadsheets, or even with notes written on scraps of paper.

There are a couple of problems with these “self-made” contact management systems. First, unless the salesperson is extremely disciplined, it’s likely that some contacts are falling through the cracks. Follow-up probably isn’t what it should be and your sales are hurting as a result.

The other problem, though, is that you can’t verify anything that your salesperson tells you. You can’t see what’s in their pipeline or how close a prospect is to purchase. A salesperson may tell you that a certain prospect will buy in the next two weeks, but the salesperson may be operating off an overly-optimistic projection.

With a CRM, your salespeople will be required to enter in every interaction they have with each prospect or client. Many CRMs can then score that interaction, so you can easily see how close each prospect is to become a customer. That will help your salespeople improve their followup and it will give you a more realistic sense of what’s in the Pipeline.

There are many different types of CRMs available. Salesforce is a popular choice. Pipedrive is an affordable alternative that may work better for smaller businesses. Whichever option you choose, make sure you and your sales team actually utilize the software.

Get an outside opinion.

Finally, you may want to get outside help to make sure your cash flow projection is as accurate and safe as it needs to be. Specifically, your CPA can be a great resource when it comes to cash flow projections.

Your CPA has probably worked with hundreds of businesses. That gives them the experience and knowledge to know what risks you may face. They’re also not as emotionally invested in your business as you are, so they can take an objective look at your projections without being too hopeful or optimistic.

Many CPAs offer cash flow projection services. You give them access to your CRM and they take that information to build your projection for you. The benefit of doing this is that you know it will get done and that it will be done right. When you want to review your upcoming cash flow situation, a projection is ready and waiting for you to examine.

Talk to your CPA about how you can project cash flow more accurately. Getting it right could mean life or death for your business.

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