What Xero already knows
Accounting software holds most of what a forecast needs. Unpaid sales invoices are money coming in, with a due date. Unpaid bills are money going out, with a due date. Repeating invoices and bills show what recurs. Together that covers a large part of a typical business's cash movement over the next few weeks.
What is usually missing
- Payment habits. A due date is when an invoice should be paid, not when it will be. Use each client's actual history.
- Payroll and pension. If payroll is run outside your accounting software or posted as a journal, it may not appear as a bill.
- Tax. VAT, PAYE and corporation tax payments are often not sitting in unpaid bills. See VAT and cash flow.
- Regular costs without bills, such as card payments and direct debits.
- Work not yet invoiced, and deals not yet signed.
- Your real bank balance, which may differ from the book balance if transactions are not yet reconciled.
Steps to a trustworthy forecast
- Start from the bank balance you can see in your bank, not the book balance.
- Bring in unpaid invoices and bills, and adjust expected payment dates for clients who pay late.
- Add payroll, tax and other regular payments that are not in the bills list.
- Add recurring income such as retainers.
- Mark a cash buffer and look for the weeks that fall below it.
- Keep separate any work you have not won, as scenarios. See forecasting retainers and projects.
Where Cadence fits
Cadence connects to Xero to read your invoices and bills, keeps them up to date, and lets you add everything Xero does not know about: recurring items, payroll, tax, buffers and scenarios. It only reads from Xero and never changes your accounting data. Not on Xero? You can import from a CSV. See the integrations.