What is a Cash Flow Forecast for the Perishable Food Supply Chain?

Cash flow is crucial to perishable food businesses, and increasing it is critical to both maintaining operations and developing or scaling a company. After all, sufficient cash flow is essential in many ways, needed to correctly manage day-to-day expenditures, pay staff on time, and invest in new technologies and equipment.

Cash flow forecasts play a key role in determining the amount of money that will be available, as well as whether there’s a need to increase cash flow.

This blog post will look at forecasting for cash flow and why Silo is the best option for improving your business’ cash flow.

What is a cash flow forecast?

Forecasting cash flow means to anticipate a company's financial status by calculating how much money will flow in and out of the company. A cash flow projection lets you know if your company has negative or positive cash flow at any particular moment.

Let’s use a cash flow forecast example to better explain this.

Let’s say a company projects $50,000 in cash inflows from sales and $20,000 in cash outflows from operating expenses, resulting in a net cash increase of $30,000. This shows a positive cash flow trend and also indicates that the company can cover its expenditures and still have funds for expansion or other investments.

The importance of forecasting cash flow for perishable food businesses

Here are some reasons why forecasting cash flow is of particular importance for perishable food businesses.

Clarity for improved decision-making

Cash forecasting assists management with looking into the future of the company and making better, more informed decisions regarding the company’s performance and managing its money.

Promotes responsible spending

Similarly, the results that come about from forecasting can aid in controlling expenditures and maintaining a healthy cash flow. In other words, it promotes the proper management of cash and ensures company spending is done so responsibly.

Ensures financial safety

Forecasting is vital because companies with cash flow shortages and liquidity concerns who aren’t aware of these issues until it’s too late are likely to go bankrupt. 

Forecasting allows management greater control over the company to take any necessary preventative measures.

How do I perform a cash flow forecast?

To perform a forecast for cash flow, consider the following.

Collect pertinent data

To forecast cash flow, some useful metrics to consider that allow insight into your business’ financial health are:

• Transactions in the selling and buying of inventory

• Supply costs

• Wages paid to workers

• Gains or losses in equipment investments

• Financing costs (interest, debt, etc.)

This information may be acquired from a variety of sources and should be carefully collected for analysis.

Utilize forecasting tools to analyze data

Various forecasting tools can assist with examining and analyzing the data collected. After all, businesses often have an ample amount of data readily available, but extracting insights from them can be difficult when done manually.

Technological platforms can assist with identifying patterns and trends to properly forecast cash flow.

Monitor forecasts and adjust operations as needed

Cashflow forecasting should be conducted on a regular basis, as it ensures prediction accuracy so inventory levels remain sufficient.

After all, forecasting helps businesses cut inventory costs, avoid stockouts, and increase customer satisfaction, so every effort to ensure it’s done consistently counts.

Challenges in cash flow forecasting

Forecasting cash flow doesn’t come without its challenges. Here are just a few of them.

Lack of sufficient data

As previously stated, data is often abundant for perishable food businesses, but determining how much of that is valuable can be a challenge, especially for businesses that still rely on paper methods.

This issue can be counteracted by employing the use of technology and digitization for more organized access to data and greater visibility. You can easily parse through information and determine what’s valuable and what isn’t.

Misinterpreting information

The smallest shift in cash flow combined with the absence of an explanation can cause a scramble to enact change, especially when profit margins are already razor thin.

It’s important to determine proper cause-and-effect connections and judge if it’s an abnormal shift (one that might not occur again until the exact same circumstances line up on a continuous basis). This is essential to correctly interpreting trends and formulating strategies to deal with the change.

Take control of your cash flow with Silo

Cash flow forecasts are essential to determining how much cash you have on hand to run your business, expand operations, and invest in growth.

Silo connects all of your business’ financial resources and tools, allowing you to get a better handle on your cash flow. With Silo, you’ll gain access to unparalleled visibility and control.

Check out Silo’s capital offerings, which provide fast, cost effective, and discreet access to working capital.

Silo’s integration of technology and capital empowers businesses to optimize their processes, enabling mastery of their cash conversion cycle. Our business-forward approach makes us the ideal choice for perishable food businesses seeking financial solutions, as we’ll know your business better than any other lender.

Book a Silo demo today!