Bob Gauvreau explains why checking your bank balance isn't enough. You need to compare cash-flow forecasts to what clients actually pay and deposit. When expected money doesn't arrive, that gap between forecast and reality is where cash crises start.
So monitoring cash flow is different than just seeing what's in the bank balance. Cash flow projections are great. What it shows you is the future cash outflows and inflows that will occur outside of today. But here's where people sometimes miss. Even with cash flow projections, you have to compare that to the actual of what's happening. But if you fall short in your collections, if you don't make those deposits, if you don't collect those payments from your clients, next thing you know, the real realistic expectation of where you were headed is very different from where you are, and that gap can be detrimental. So here's what you don't do. You don't manage your business based on the cash in your bank account. You do want to do forecasts, but then you also have to measure it to what's actually happening. The gap between where you expect to go and what's actually happening— if it's tight, great. If it's not, you have to understand how you quickly get it back on track. And that is the key to managing long-term cash flow Success.
