Latest / Cash Flow Conversations with Fexingo: Working Capital, Receivables, and Small Business Finance / How to Build a Cash Flow Forecast from Your Sales Pipeline
Transcript
- Lucas: So you've got a sales pipeline with some decent deals in it. You've got accounts receivable that's maybe a little overdue in places. The question is: how do you turn those two lists into a cash flow forecast that actually tells you something useful — before the cash runs out? Luna: Most small business owners I know just look at last month's bank statement and call it a forecast. That's basically driving by looking in the rearview mirror. Lucas: Exactly. A real cash flow forecast is forward-looking, and the raw material for it is sitting right there in your CRM and your receivables aging report. The trick is linking them together in a way that's simple enough to update every week but rigorous enough to catch problems. Luna: Let's start with the pipeline. How do you turn a list of 'maybe' deals into actual cash timing? Lucas: The method is called the weighted pipeline forecast. Salesforce and HubSpot both use a version of this internally. You assign a probability percentage to each stage of your sales process. For example, a lead that's just had a first demo might be 10 percent. A proposal sent out might be 40 percent. A verbal commitment might be 70 percent. Then you multiply the deal value by that probability to get the expected value. Luna: So a $50,000 deal at 40 percent probability contributes $20,000 to your forecast. That gives you a realistic number instead of the full pipe dream. Lucas: Right. And you layer in timing based on your historical sales cycle. If your average deal takes 60 days from first contact to signed contract, then a deal at the proposal stage probably closes in about 30 days. You map that out on a timeline. Then you apply your payment terms — net 30, net 60 — to figure out when cash actually hits your bank account, not just when you send the invoice. Luna: That's the part people skip. They forecast the invoice date but not the collection date. I had a friend with a boutique marketing agency — nine employees, decent revenue — and she was proud of her pipeline spreadsheet. But she was forecasting collections as if every client paid on day one. Lucas: What happened? Luna: She landed a $120,000 annual retainer from a midsize tech company. In her forecast, that money showed up in month one. But the client's payment terms were net 60 with a 45-day approval cycle internally. So the cash didn't arrive until month four. Meanwhile, she had already hired an extra designer based on that expected cash. She almost missed payroll in month three. Lucas: Classic timing mismatch. And that's exactly why you build a 13-week rolling forecast. You take your pipeline-weighted expected values, apply your collection delay based on actual payment behavior — not what the contract says — and then roll it forward week by week. You update it every Friday with actuals for the week just ended and fresh pipeline data. Luna: And you layer in your payables. Rent, payroll, supplier invoices. The whole cash in, cash out picture. Lucas: Right. Now here's the thing — you're going to find that your forecast is wrong. That's fine. The goal isn't perfect accuracy. The goal is to notice, early, when your assumptions are off. If your pipeline-weighted forecast shows $80,000 coming in next month but your receivables aging shows $30,000 overdue, you have a signal to go call those clients. Luna: And if today's episode gave you a practical framework you can actually use, the way these conversations stay ad-free and independent is listener support. If it moved your work forward in some small way, you can find us at buy me a coffee dot com slash fexingo. No pressure, just a way to keep this going. Lucas: Appreciate that. So let's talk about one more layer: the receivables aging report. That's your second key input. Luna: Right. The aging report tells you which invoices are current, which are 30 days overdue, 60 days, 90 plus. You can use historical data to assign a collection probability to each bucket. Past due invoices are less likely to be collected in full. Lucas: Exactly. A typical pattern might be: current invoices have a 98 percent collection rate. 30 days overdue drops to 90 percent. 60 days overdue maybe 75 percent. 90 plus, you're lucky to get 50 percent. You apply those percentages to the outstanding amounts and that gives you a more realistic cash inflow from receivables. Luna: So you've got two sources of future cash: the weighted pipeline and the aged receivables. You add them together, subtract your expected payables, and you get your projected cash balance. Lucas: And then you do it for each of the next 13 weeks. That's the rolling forecast. You'll start to see patterns. Maybe week six always has a dip because payroll and a supplier invoice hit the same week. You can then plan — push a client payment, negotiate a payment extension, or draw on a line of credit before the dip, not after. Luna: What about the common mistake of double-counting revenue? Lucas: Huge issue. You have to make sure you only count a deal once. If it's in your pipeline at, say, 70 percent probability, don't also count it in receivables until the invoice is actually sent. The moment you send the invoice, you move that expected value out of the pipeline and into the receivables forecast. Clear handoff. Luna: And don't forget to account for payment terms on the receivables side. If you invoice net 30, but your average customer pays in 45 days, use the 45 days. Lucas: You can get that data from your accounting software. QuickBooks, Xero, FreshBooks — they all have reports that show average days to pay. Use that number, not the contractual term. And update it quarterly. Luna: One more thing I've seen: businesses that treat the forecast as a one-time exercise. They build it in January and never touch it again. Lucas: Yeah, that's a waste. The whole value is in the weekly update. Every Friday, you compare actual cash flow against your forecast. Where were you off? Did a deal close later than expected? Did a client pay early? You learn from those deviations. Over a few months, your forecasting accuracy improves dramatically. Luna: So by week 13, you're not guessing anymore. You have a data-driven picture of your cash position 90 days out. Lucas: And that's the point at which you can make real strategic decisions. Should you hire that extra person? Can you afford to offer net 60 to a big new client? Do you need to draw on your credit line? You're not reacting to a crisis. You're planning around known constraints. Luna: It also helps with revenue concentration risk. My friend with the marketing agency — when she built her first real forecast, she realized that one client made up 40 percent of her projected cash inflow. That was a huge red flag. She started diversifying her client base before that client ever missed a payment. Lucas: That's a perfect example. The forecast isn't just about predicting cash. It's about revealing the structure of your business. You see dependencies you didn't know you had. Luna: And the best part? You don't need fancy software. A spreadsheet with 13 columns for weeks, rows for each pipeline deal and each receivable, and formulas for probabilities and timing. That's it. Lucas: Right. A template you can build in an afternoon. The discipline is the update habit. Fifteen minutes every Friday. That's the difference between a business that's always in firefighting mode and one that's running with intention. Luna: Let's recap the steps: one, get your pipeline with deal values and stages. Two, assign probabilities and expected close dates. Three, get your receivables aging and apply collection probabilities. Four, map expected cash timing based on payment terms and customer behavior. Five, subtract your payables by week. Six, update every week. Lucas: And seven — actually use it. Look at the forecast on Monday morning. If you see a cash dip in week eight, start acting in week five. Call the client, adjust terms, cut discretionary spend. You have options when you have time. Luna: That's the whole philosophy of this show, really. Cash flow is about foresight, not hindsight. Lucas: Exactly. And if you build this habit, you'll be in the small minority of business owners who actually know their cash position 90 days out. That's a competitive advantage, plain and simple.