Episode 60: Master Cash Flow Forecasting for Creative Businesses

  📍 Welcome to the Creative Minds Smart Money Podcast, where we turn financial confusion into creative confidence. I’m Samantha Eck,  bookkeeper and fractional CFO for creative entrepreneurs. Each week I’m sharing my financial expertise and actionable strategies to help you build a thriving creative business. Plus, you’ll hear from industry experts who bring fresh perspectives on growing your business beyond the numbers. Because building a successful creative business starts with strong financial foundations. Your next chapter starts now.

 You are listening to the Creative Minds Smart Mini podcast, and today’s topic is cashflow forecasting, like I said, in the CFO. Episode, we will be talking about a few of these coming up. So we’re gonna focus on cashflow forecasting. We’re gonna talk about profitability. We’re gonna talk about some common KPIs that creative service providers need to be looking at.

And we’re also gonna talk about the importance of benchmarking. But today we’re really gonna focus and narrow in on the cashflow forecasting. So cashflow forecasting often gets treated like a chore. Because why would you wanna look at the future when you can just look at what’s currently in your bank account?

But it’s actually one of the most powerful leadership tools you can have as a business owner, and it is such an underrated forecasting report that we need to really just talk about it. So in this episode, I’m gonna show you how you can use cashflow to grow higher and rest so that you can have complete and total clarity on your business.

So cashflow forecasting is different from just bookkeeping because like I have mentioned before and talked about before, bookkeeping is based on what’s already happened. So when I’m in there and I’m categorizing and I’m reconciling and I’m looking at your books, that’s everything that has happened in the past.

It’s not anything that’s happened in the future. It is past data that I’m looking at and making sure that it is accurate. Now, that’s not to say that bookkeeping is not important. We need that past data. We need your bookkeeping to be up to date in order to get you these critical. Financial strategies and forecasts that we need to look at.

So forecasting, when we think about it, it’s what’s about to happen, like what’s gonna go on in our business. So it shows you how much cash you’ll have on hand on a week by week, a month by month basis based on your income. You know, you two expect, and the expenses that you know are going to come in and it’s not.

A perfect report. I will tell you that right now. Forecasting is very volatile. It’s very something that. Based on the information we put in, it’s not gonna be perfect, but it’s more about being prepared than it is about being perfect. We wanna utilize the data to kind of see if we can plan around it.

And of course, the easiest way to have some sort of cash flow forecast is if you have monthly recurring revenue. If you have variable revenue, it’s a little bit harder, but that’s when we really lean on that historical data, like I was saying. So you wanna have good books? And good historical data in order to really utilize a forecast or a cash flow forecast.

So you might be wondering, okay, that’s great, but why is a forecast so critical for growth? I talked about this a lot in the last episode, but a forecast is really critical because it’s going to help you determine if you can hire right now, if you need to delay an investment or if you have enough to pay yourself.

And I wanna just really narrow in on those right now. If you were saying, okay, I want to hire a new account manager for my business. I know they’re gonna cost an extra $700 a month, can I afford that? And we punch that into your forecast and we say, okay, how is $700 a month going to impact your business over the next five, six months?

And we see that you can hire them this month, but next month, you know you have a client leaving, your income is immediately gonna drop. We know that Maybe it’s not the right time to hire right now. A or B, we know that you need to get another client before you can feel fully confident in being able to hire right now.

Same thing with the investments. If you’re looking at that and you’re saying, I wanna purchase a $5,000 educational course so that I can grow my business because I feel like this is gonna be so valuable, and it’ll just help you determine if you need to delay it.

Because again. Not necessarily delay it, or if you need to have more clients, if you’re like, okay, I need one more client before I can buy this this month, and then I will feel comfortable.

Or if you’re like, okay, you know what? I have some expenses dropping off in the next couple months. I’m gonna wait a couple months to get it. And also. Analyzing and saying, okay, I know I can, I need to pay myself $5,000. I’m gonna predict that across the next few months. So if I’m making sure that I’m paying myself $5,000, how much do I have left over?

That’s why it’s so critical to being able to grow your business because you’re gonna have all of that data at your hands and being able to actually understand if you can hire, if you can invest, if you can pay yourself. So a forecast just lets you respond early instead of reacting late, because of course, again, if you’re looking at six months from now and you’re like, can’t.

The, just as an example, you’re like, I wanna hire a bookkeeper. And we put that in your forecast and we see that $500 a month or a thousand dollars a month is fine for right now, but in six months when you know you have some clients who you’re not sure if they’re gonna renew or not, that income is gonna be down.

Now you can say, okay, well, hmm, what do I need to do to make sure that in six months I can keep this bookkeeper? Because now you’re gonna know. You’re gonna know exactly what’s coming and how you can prevent it. Okay, so now we’ve try and kind of talked about it. I wanna talk about what a good forecast includes.

I’m not gonna teach you how to make a forecast, that’s really hard on a podcast that’s really hard to actually explain and like go through. But I really want to talk about like what a good forecast includes so that maybe you can kind of like help, help, I can help you piece together some form of forecast so that you can do something yourself.

So the first thing you’re gonna need is your starting cash balance. And before you’re like, okay, I’m gonna put in the $5,000 I earned last month. No, nope. No, we don’t do that. Your starting cash balance is the money that you have in the bank right now. So if you’ve $3,000 in the bank, that is your starting cash balance, not the income you have coming in, not the income that you had from last month.

It is the money that is in your bank account today. That is your start cash balance. The next thing is your expected income, so anything from your contracts, so maybe you have an outstanding contract or a payment plan from your retainers. If you’re a social media manager and you have clients that have retainers from any launches that you might be launching this month, maybe you’re launching a new course and you expect to make $30,000 from that course of the course of the month, again, that’s expected income and then.

Of course, any sort of like, other launches that you might be launching, maybe you’re launching a new service, whatever income you think that you might be making in the next month, the month after, the month after. Usually we try and predict like a set amount with like a percentage increase based on like either historical data or what you think is gonna happen.

So for example, if I’m using myself as an example, I try and onboard five clients a month. That average between 500 and $1,500 in retainers. So if I cut that. In half and say, okay, the average client is gonna be, you know, $750. That’s a 30% increase. So I’m expecting to grow 30% every month if I got all five clients.

So I’m putting that data into a forecast and saying, okay, how do I get there? I need to get all five of these clients and need to be around this much, and that just helps me to predict that. Then you have your. Fixed expenses. So your fixed, non-negotiable expenses are things like payroll, software, subscriptions that you need for your business, and then things like rent, things like rent for your building, not rent for your own personal needs, rent for your business.

A non-negotiable expenses or fixed expenses are things that your business needs to survive and are a consistent price every month. So a Google subscription, for example, for Google Workspace is 1279. For one user that is consistent across every month, that’s a fixed expense. Then you also have your variable or seasonal costs.

Or what I, yeah, your, what I like to call your variable expenses. So this is things like ad spend, things like maybe you have a contractor who works variable months or variable months, maybe you have a contractor who works variable hours. That is kind of like a variable cost, whatever you have that is not a set cost is a variable or seasonal cost.

And then at the end of the day, you have your target buffer. So what you need to feel safe, so if we’re talking about what I’m talking about with those three to six months,

you wanna make sure that that buffer is in there so with all of this kind of coming into play, we’re making sure that we don’t have drop below that buffer that you’ve set. Again, a forecast isn’t something rigid. I know you might be thinking it’s something similar to a budget, but it’s not rigid.

It’s responsive, and we’re gonna update it like it’s a living document. So as the month goes on, we make sure that it’s. Consistently updated so that it’s consistently accurate. It helps us to know like, okay, so if I send my clients a monthly or a weekly update, I can say, okay, you know, based on the expenses that we’ve had so far this month.

We’re expected to hit a

negative this month so that client knows one of two things. Either they need to draw back on expenses, they need to hold back expenses, or they need to increase their revenue so that they don’t hit that negative month. So it just gives you that kind of like responsiveness that you need in a business to survive.

So. Now that we know the basics of a good forecast, we know what one is, what changes when you start forecasting because you’re like, okay, Samantha, but why does this even matter? Like, what is going to, how is it gonna impact me? Of course, when we start forecasting, you know, hiring stops being such a big leap because it’s logical.

You know, if you can afford to hire, you know how much you could afford to hire someone for. And if that’s not a price that you want to hire someone for, you wanna hire them more. For more, you know, that you either need to have better, like more clients or better paying clients or whatever that is. You know, you stop underpaying yourself as a just in case, because now a again, you’re.

You are accounted for in your forecast. You know that you need to pay yourself $5,000, $9,000 a month, whatever it is, and there’s no more just in case, because that’s in your forecast. You know that you could afford to pay yourself $9,000 and that you’ll still have $5,000 left over at the end of the month unless you change something.

And then of course, you can align things like launches, price changes, or investments with your actual financial readiness. You know that that uncertainty is now a strategy. And it’s gonna be a gift to your bank account and to your nervous system because you know what’s coming. You know you can do things.

You know you have a launch coming up in July. You know that you can plan some bigger expenses around them because your launch is probably going to be successful based on previous launches. Instead of making a decision just because it feels good or just because you think it might be good, you have now data that backs up that decision and is going to empower you to feel confident about it.

You’re not gonna feel like you can’t do it or you don’t know, or like you might go into the red this month. You know, you know, and it’s so powerful and I want that for you. I want that powerful strategy for you, which is exactly why I’m talking about these things. So you might be thinking, okay, so I’m doing a cash flow forecast, but I just don’t understand it.

When might you need me? When might you need a fractional CFO or someone to kind of step in and give you some sort of advice? We’ve talked about it before. CFO strategy and everything like that is for every level of business. It’s not just for small business or big businesses, it’s for all types of businesses.

So you can buy a template online. There’s tons of templates with cashflow forecasts, things like that. That’s great and I think that it’s an amazing starting point for you to just get a template and start forecasting. But what I want you to understand is that most templates don’t account for nuances.

They don’t account for the different income cycles. They don’t account for retention rates, and they don’t account for the shifting costs. They’re expecting you to put in data that you have consistently. But they’re not expecting you to really understand what’s going on. Now, I can give you a cashflow statement and say, here’s your cashflow statement.

That is not a forecast. It does not help you with anything. Forecasting isn’t just about filling in numbers or looking at numbers. It’s about knowing what those numbers mean. It’s about knowing that. You know, the contract, how the contract labor is going to affect your bottom line. It’s about knowing how the revenue is going to kind of feed into the rest of everything.

It, you really want to be able to understand it because we’re not just tracking money, we’re really focusing on creating a narrative of where the business is going and how you’re getting there. So if you are like, okay, you know, I feel like I’m not getting that out of a cash flow. Like analysis or a cashflow forecast, then you, that’s when you definitely need someone to come in and kind of help you with that.

And I’m totally open for discovery calls or to chat about this. Cashflow forecasting is a completely separate add-on, so you can get it at any stage. If you are in my lowest package to my highest package, I don’t usually offer it to people I don’t do bookkeeping for because in order to forecast appropriately, I need to know your numbers.

So. I can do it, but it might not be as accurate as if I was doing your bookkeeping. So if you enjoyed this episode, please like it, comment, share it with a friend, and as almost get out there on social media, share this podcast so that people can find it like you and really learn more about their business and their finances, and really grow appropriately, grow their business to newer heights and different places.

If you wanna hear a new topic, make sure to fill out the form in the description box below. And as always, there will not be any more guests at the as of the end of this year. So make sure that you guys are filling out any topics you want to hear from me so that I can chat your ears off like I have been.

Otherwise, I wish you the best week ever. We will see you next week. Farewell fellow travelers.