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The Definitive Guide To Managerial Accounting For Small Businesses

min read •
April 26, 2022
September 26, 2022

You’re a small business owner, maybe a founder of a startup or a web3 company, or a professional that has started their own practice, think: veterinarian, dentist, chiropractor, optometrist or lawyer. You know the routine. You wake up, have breakfast, go to work, work late, come home for dinner, then probably work some more. If you have a family or loved one, you sprinkle in some family time in between all of that. Then rinse and repeat.

Work life balance… is that actually a thing?!

The ironic part is that you got into business on your own for freedom, flexibility and financial reward. And yet, the more you grow, the worse it gets. There are so many things to handle as a business owner: admin, managing employees, figuring out how to make the finances all work, advertising, sales. You barely have a minute in the day to get any “actual work” done, yet your practice hinges on it.

The Problem: You’re Running A Business, Not Building One

The problem for most entrepreneurs is that they are busy running a business, not building one.

What’s the difference?

The Difference Between Running A Business And Building One

When you are running a business you have to:

  • Wear a lot of different hats or nothing gets done
  • Accept every new customer walking in the door because you are the main sales machine
  • Work long hours, because if you don’t, nothing will get done
Running a business is stressful for any business owner.

When you are building a business you:

  • Only wear the hats you want to, and find great people to do the rest
  • Have a consistent sales pipeline that brings great customers to you
  • Can win your time back, because everything can run without you
Building a business is a much more happy experience for business owners.

When you are running a business your role is still very much that of an employee, with little freedom, time or flexibility. You just happen to own the company you are an employee of.

Most entrepreneurs don’t start their businesses with the vision of being shackled employees. They started because they had a passion and dream they believed would benefit others, and help them prosper in the process.

So why do so many small business owners fall off course?

Why People End Up Running Businesses

When professionals like veterinarians, dentists, optometrists, chiropractors and lawyers, start their own business, it is usually because of three things:

  1. They are extremely passionate and extremely good at their vocation.
  2. They have clients that love them for it.
  3. They often wonder why their efforts earn someone else a profit.

Simply put, they have all the skills that are required to carry out the duties of their profession so the decision to “go it on their own” is relatively easy.

Technology founders, web3 visionaries and other entrepreneurs aren’t that different:

  1. They have a passion and a vision for something that could change the world
  2. They have the technical skill to carry it to fruition

In each case, new business owners are highly trained and skilled from a technical standpoint. More often than not though, they are not highly trained in operating a business:

  • They hit a wall with the sheer volume of paperwork and people hours that is required
  • They aren’t sure how to manage their staff or manage payroll properly
  • They don’t know where to start when it comes to accounting and taxes
  • They run into issues with legalities of their business, whether simple contracts or regulations
  • They have troubles scaling their marketing and sales
  • They aren’t sure how to train their team and keep quality under control
Business owners aren't often trained in running a company and it's stressful.

In trying to manage all of this, without proper training, many entrepreneurs waste a lot of their own time and effort. They end up working in their business, trying to run it, far more than working on it, trying to build it.

How Do You Build A Business?

There are a plethora of great books on building a successful business. The E-Myth, or the E-Myth Revisited by Michael Gerber. Traction by Gino Wickman. Making Money Is Killing Your Business by Chuck Blakeman. Each is a wealth of resources on how to systematically build a business.

The common theme in all of these works is that systems and processes are the key to building a thriving business. With systems and processes you are providing guides and frameworks for others to do what you do. And by empowering them, you end up freeing yourself.

Creating systems and processes isn’t as unnatural as one might think. Professionals and founders work with them all the time:

  • Veterinarians, dentists, optometrists and chiropractors are trained in how the human body works as a system, and how they can use different procedures to help it function optimally.
  • Lawyers are trained in the letter of the law, and how the legal system works, so that they can work within that construct to help their clients.
  • Web3 and technology founders come from a technical background, and keenly understand the problem they are solving with their own self made solution, so they are changing the processes all the time to create “a better way”.

One of the tricky pieces is knowing where to work and make improvements first, and delegating work to others as you can. Your time and capacity is simply too limited to do it all on your own.

A helpful method here is to:

  1. Think about the tasks that you currently do
  2. Think about the value of each of the tasks that you do
  3. Think about the tasks that you would like to do

When you look at everything that you currently do, is it $15 per hour work, $30 per hour work, $60 per hour work or more? When you think about what it is that you want to do, what is it that is both high value (think $500 per hour) and something that you enjoy? Take everything that isn’t on this list and start creating systems and processes to properly delegate it. Getting people to “work as you do” and keeping your “secret sauce”.

If you can do that, you are well on your way to building your own business.

How Managerial Accounting Can Help

So, if this is the Definitive Guide To Managerial Accounting For Small Businesses, why are we talking so much about building a business?

Because the two are tightly intertwined.

But before we get into the the how or the why of that, we need to first understand what management accounting is.

What Is Managerial Accounting?

Management accounting is very different from peoples' typical perception of accounting. If a small business owner was asked to think about accounting or are asked to explain what it is, they would often start talking financial accounting, tax accounting or even bookkeeping.

The Textbook Definition Of Managerial Accounting: Cost Accounting

If you were to lookup the textbook description of management accounting you would see a lot of references to cost accounting, direct costs, product costing and inventory valuation.

These terms are all highly related to manufacturing and inventory. This is because, in the past, managerial accountants' focus was predominantly on piling through historical data and and creating analytics related to manufacturing, inventory and product costs.

Managerial accounting is so much more than this now though.

What Management Accounting Really Is

In today's day and age, management accounting encompasses any process that identifies, measures, analyzes, or communicates financial information to business owners with the sole purpose of improving their decision making.

In short, managerial accounting helps business owners make informed decisions about how to run their business, and ultimately, aims to improve the profitability of their business.

It includes tools that many entrepreneurs would love to have at their disposal, like:

  • performance reporting
  • break-even analysis
  • budgeting
  • variance analysis
  • cash flow analysis
  • cash flow forecasting
  • trend analysis

Management accounting is basically "the math" that business owners try to figure out daily when they are trying to push their businesses to succeed.

Management accounting is made up of the numbers behind your business planning.

How Managerial Accounting Differs From Financial Accounting

If management accounting is "the math" that entrepreneurs are calculating in their head each day to help make their businesses succeed, then what is it that typical accountants do?

More often than not, when people think of accounting, they are actually thinking of financial accounting.

Financial accounting is the process of recording, categorizing and summarizing financial transactions. Financial accounting includes the preparation of traditional financial statements, such as balance sheets, income statements and cash flow statements.

The key difference between managerial accounting and financial accounting is that managerial accounting information is used internally in the decision making process and can often be forward-looking, meaning that it focuses on future data. Think: cash flow forecasts, revenue forecasts, capital spending plans, and so on.

Financial accounting, on the other hand, is historical in nature, focussed on past data, and the information prepared (i.e. the financial statements) is often used both inside and outside the business. Shareholders, banks and other external users often need insights into how a business has been running, and financial accounting provides this information.

This is also why financial accounting has to adhere to Generally Accepted Accounting Principles (GAAP), which creates consistency and comparability across businesses around the world.

How Managerial Accounting Differs From Tax Accounting

Of course, when most small business owners think about accounting, they more often than not are thinking about tax accounting.

In its simplest form, tax accounting is the process of preparing tax returns and ensuring that businesses comply with all relevant tax laws.

Tax accounting, like financial accounting, is highly regulated. This is because tax laws can be quite complex, and the knowledge required to prepare and file tax returns properly can be quite high.

The difference between managerial accounting and tax accounting is that tax accounting is focused on providing information to the government so that they can tax businesses properly. Managerial accounting, on the other hand, is focused on providing information to business owners and managers, helping them run their businesses more effectively and profitably.

How Managerial Accounting Differs From Bookkeeping

We've talked a lot about how management accounting is different from other forms of accounting, both financial accounting and tax accounting. But what about bookkeeping? It provides information to internal parties as well, so how does it differ?

At a high level, bookkeeping is the process of recording all financial transactions made by a business. This includes purchases, sales, receipts and payments.

The key difference between bookkeeping and managerial accounting then, is that bookkeeping focusses on data entry and record keeping, while managerial accounting focusses on analysis and decision making.

A key note to make here though: don't underweight the importance of bookkeeping. Bookkeeping is the foundation of any sound finance function, and management accounting specifically relies on it quite heavily. If the bookkeeping isn't high quality, then the analytics based on it won't be high quality either. Or... garbage in, garbage out as they say.

How Managerial Accounting Can Transform Your Small Business (The Benefits Of Managerial Accounting)

Now that we've talked about what management accounting is, we can properly talk about how it can help you in terms of building a business (instead of running one).

Remember, one of the keys to building a business is creating proper systems and processes. Focussing your time where you want to be spending it, where your passions are, and on where you will be most impactful and most valuable.

Management accounting can help you achieve this by providing better decision making tools, increasing the value of your work and making your business more effective in general. It will help you see where you can make the biggest impacts and how you can make them. And ultimately, management accounting will help you make more money, helping you hire more people that will help you build your business.

How exactly can it help do this?

Well, some of the key benefits of managerial accounting include:

  1. Improved decision making
  2. Better financial control
  3. Better planning and budgeting
  4. Improved communication within your business
  5. Improved problem solving

This means that with management accounting you could:

  • Keep better track of your progress towards your business goals
  • Grow your revenue by using performance reports
  • Save more money by watching costs more closely
  • Make more money by analyzing your margins
  • Generate more cash by analyzing your cash inflows and outflows
Using managerial accounting you can better manage your business and succeed.

Keep Better Track Of Your Business Goal Progress

Most small business owners have business goals and dreams, even if they are in a mental filing cabinet, or written on a piece of napkin. Most small businesses, however, don't track their progression towards those goals. And there is common a business saying related to this: if you can't measure it, you can't fix it.

To truly achieve your business goals you need to plan them out, then measure them. At a very high level this means writing down your end goal and how many clients or customers you will help in the process. This will give you a rough idea of your revenue targets, from which you can then start determining the costs required to achieve those targets.

With these revenue and expense goals in mind, you can then measure your actual performance against them over time. Unlike financial accounting which is completely historical looking and doesn't benchmark an ideal state, this management accounting process helps keep your business on proper course, driving towards your business and personal financial goals.

Grow Your Revenue With Performance Reports

There is more to knowing your numbers that just looking at your financial statements and general accounting information. Businesses need to focus on a few key metrics in order to improve their performance, and they needs the proper reports to show them these metrics on a timely basis.

This is where performance reporting comes in. By designing your accounting process and system in a way that matches business targets, and gets the management team proper accounting data, they can improve business operations to meet those targets. And that includes revenue.

Perhaps you need to focus on your advertising spending per lead. Perhaps you need to incentivize your sales people per contract. Perhaps you need to optimize the admin cost required per customer.

In any of these cases, having the proper metrics and managerial accounting processes in place will help you better improve your company, your team and your top line revenue.

Save More Money Using Budgets

Knowing your high level business goals and performance measures are one thing, but what about more granular financial performance? Again, to truly achieve your business goals you need to plan them out, then measure them.

One common management accounting practice associated with this is budgeting and budget tracking. Here you create a vision of what you should be making and spending in your business on a monthly basis (or other frequent basis), and then see if you actually achieve that vision with your actual performance. Any significant difference is looked at in depth to see if a change in operations is necessary.

Unlike financial accounting which is completely historical in nature, this managerial accounting process can really help keep your spending in line with your short term plans, saving you a lot of money over time. You can learn more about how to do this with our article: How To Spend Less And Save More In Your Business.

Make More Money Analyzing Your Margins

Measuring your actual performance against ideals isn't the only useful way to use managerial accounting. You can also make more money as a business by using trend analysis and forecasting, and margin analysis.

This is a form of financial analysis that uses past accounting data to see:

  1. If there are any trends in your business
  2. How much you are making serving each customer or client in your business (i.e. your margins, so the higher these are the better!)

This information can then be used to make business decisions that will improve your margins over time. In doing so you can make more money without increasing your revenue. We have a blog post that talks more about this exact topic in depth called Increase What You Make Without Getting More Customers: Boost Your Profit Margin!

Generate More Cash By Watching Your Cash Flows

There are a lot of business sayings around cash flow: cash is king, cash is the lifeblood of every business and so on. There is a reason for this, traditional financial reports don't convey cash flow extremely well. There is a big difference between profit and cash flow. Yet cash is the single measure that most small businesses truly connect with. If more keeps going into your bank account each month, you're doing well... and vice versa.

Cash flow analysis is a therefore a key piece of managerial accounting. We would even go so far as to say that it is a must-have small business tool. Using cash flow forecasts you can:

  • Plan and optimize cash flow
  • See your company's true financial position
  • Create working capital management strategies
  • Make business decisions based on your future cash position

All of these will ultimately keep more of your hard earned cash in your business, a goal every entrepreneur would love to achieve.

How Managerial Accounting Can Transform Your Personal Life (And Why You Need A Managerial Accountant)

To this point we've talked a lot about how using management accounting can improve your business operations in terms of both effectiveness and profitability. But there is an extremely positive side effect that we haven't discussed yet: how these improvements will have profound impacts on your personal life.

By re-investing the additional capacity and profits into better people, training and systems, you will win back your time and flexibility, and start seeing the personal rewards you wanted when you first ventured out on your own.

That all said, there is a lot of managerial accounting that requires special skills and knowledge. And not too many people start their business wanting to become a professional accountant with those exact skill sets. So to truly transform your life, at some point, you will probably want to hire a managerial accountant. They will help you:

  • Win back your hard earned time
  • Improve your existing business operations
  • Integrate your personal and business finances
  • Scale your personal passions
Managerial accounting an help you succeed both professionally and personally.

Win Back Your Time

Managerial accountants are trained in everything we have discussed in this guide, and a lot more. A good managerial accountant will help you map out your future working on budgets, forecasts and capital planning. And let's face it, worrying about where the money is coming from and going is one of the primary things you worry about as a small business owner.

That means with a managerial accountant in your corner, you can focus on higher value efforts or passion projects, or simply win back some of your hard earned time!

Improve Your Finance Function

We talk a lot in this guide about what managerial accountants help you do differently: a lot more future focussed work. That said, a good managerial accountant can also greatly improve existing operations within your finance function. They can:

  • Ensure your financial reporting is current and accurate
  • Improve your bookkeeping and accounting systems to make them more effective and efficient
  • Assist in getting and optimizing your business debt

Doing so no only will help you get your time back, it will help everyone within your company to get their time back. Think about all the times people have groaned over the needs of your accounting department: "why do they need that?!" A good managerial accountant can make it so that you never hear this again.

Integrate Your Personal And Business Affairs

As a small business owner you are well in tune with how intertwined your company is with your personal life. How many times have you used your personal bank account, line of credit or credit card to fund an expense your company didn't have funds for? How many times did you forgo your proper salary?

When building a business, you are creating an asset that will begin working for you. And this completely reverses the financial situation that most entrepreneurs are used to.

How should you be taking money out of your business? How much can you take out? If you take out $X now, can you still afford Y within the business? These are all questions that managerial accountants can help you answer.

Scale Your Passion

Early in this guide we talked about thinking about the tasks you like to do. This was a question within a framework that would help hone your focus on higher value tasks. But in building a business, you really should take it one step further and ask: what is it that you are truly passionate about?

Having a business that works for you will open up new opportunities. So knowing where your true passion lies is very important. Whether it's working on building your existing business even more, creating a new business, starting a new personal project, or starting something completely different doesn't matter.

Managerial accountants can not only help you get to that passion, but they can help you do more of it over time. As stewards for the financial side of your business, you can be confident that your numbers and finances are in solid shape. And that frees you to do more of what you love.

Build Your Business With Managerial Accounting

Whether you're a professional like a veterinarian, dentist, chiropractor, optometrist or lawyer, or the founder of a startup or a web3 company, you're busy. You need to work on your business instead of working in it, and to do that you need the right information, and perhaps the right people working with you.

Managerial accounting and management accountants can help. They will future focus your business:

  • Keeping better track of your progress towards your business goals
  • Growing your revenue by using performance reports
  • Saving you more money by watching costs more closely
  • Making you more money by analyzing your margins
  • Keeping more cash in your hands by watching your cash flows

In addition to the above, by using managerial accounting you will personally:

  • Win back your hard earned time
  • Integrate your personal and business finances
  • Scale your personal passions

In short, you will start living the entrepreneurial dream you started out with: creating something you love, helping people in the process, and earning money and free time while doing so.

What's not to love about managerial accounting?!

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You might have heard these grim statistics before: more than 80% of all small businesses fail within 10 years, and more than 80% of those businesses fail due to cash flow issues. While some dispute the exact numbers, the underlying issue can't be. Cash flow is important. Period.

One would think that one of the most important business areas would be well understood. That isn't the case though. Cash flow is still one of the most ill-understood topics within the small business community. And forecasting cash flow? Even though it is just as important, it is even more misunderstood.

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Cash flow and cash flow forecasting is still very misunderstood.

In this post we will shine light on these misunderstandings, talking about what cash flow is, what cash flow forecasting is, the different types of cash flow forecasting there are, and how forecasting your cash flow can greatly benefit your small business whether you're a founder of a startup or a web3 company, or a professional that has ventured out on their own (say a veterinarian, dentist, chiropractor, optometrist or lawyer).


So, let's start with the basics: what is cash flow?

Cash flow is simply the movement of money in and out of your business. Money coming in is called inflow, while money going out is called outflow. Your business' cash flows can be positive (more cash inflows than outflows), negative (more cash outflows than inflows), or neutral (equal cash inflows and cash outflows).


The movement of money within, and through, any business is extremely important. At a basic level, every entrepreneur sets out to make money. So stripping everything down, each business' ability to generate positive cash flow, consistently over time, determines just how good that business is performing.

The more cash flow a business can make, the better it is doing.

The more cash flow your business make, the better you are doing.


Now, the above discussion on the importance of cash flow might seem overly simplified, and it is, but most small business owners don't have a great handle on this basic construct.

And there are two reasons for this:

  1. The concept of double entry accounting
  2. The concept of accrual accounting

Why Double Entry Accounting Makes Cash Flow Hard To Measure

Double entry accounting underpins all accounting as we know it. It requires that every financial transaction to be recorded in at least two different accounts. For example, when you make a sale, you would record this transaction both in your sales account on your income statement and your cash account on your balance sheet.

While this system provides greater accuracy and transparency around business finances, it also makes measuring cash flow more difficult. And that's because changes in cash can occur in two places: your income statement or your balance sheet.


  • You collect on an outstanding customer payment. Your accounts receivable account decreases and your cash balance increases, but your net income hasn't changed at all
  • You buy new equipment during the year. These capital expenditures increase your fixed assets and decrease your actual cash, but don't affect your net income
  • You make loan payments each month. Your cash balance decreases, your loan account decreases and your net income is decreased by your interest payments (so here you actually affect both statements at the same time)

Why Accrual Accounting Makes Cash Flow Hard To Measure

There are two basic methods of accounting: cash accounting and accrual accounting.

Cash accounting only records transactions when the actual cash changes hands. So if you make a sale and the customer pays later, you wouldn't record that transaction until you collect payment from the customer.

Accrual accounting records income and expenses as they are earned or incurred, regardless of when any actual cash is received or paid out. Using our same example, if you make a sale and the customer pays later, accrual accounting would record the sale right away and create an accounts receivable. It would then eliminate that receivable and increase your cash balance when you collected payment.

Accrual accounting is a double edged sword. It creates financial statements that are more accurate and reliable for various users, but also creates timing differences, estimates and other complexities that aren't necessarily well understood by business owners.


  • Depreciation is an estimate of wear and tear on your equipment. It is on your financial statements yet has no actual cash impact
  • Prepaid expenses, like an annual insurance payment, are recorded with the money spent, but are smoothed out and realized over time to more accurately reflect their utilization
  • Sales could be made on account to customers who ultimately have bad credit. Sales and accounts receivable are recorded even though no cash is received
Accounting can create to a lot of questions around cash flow for small business owners.


The cash flow statement is the report that helps overcome the shortcomings that accrual accounting and double entry accounting processes make. This report ties the balance sheet and income statement together within your typical financial reporting. It measures all cash inflows, all cash outflows and eliminates any non-cash estimates that are also contained within your financials. And ultimately it reconciles all of this information to the cash balance contained within all of your bank accounts.

The Difference Between The Direct Method And Indirect Method

You can see two different forms of cash flow statements: those using the direct method and those using the indirect method.

Cash flow statements using the direct method are considered by some to be more accurate. This method reports all cash inflows and cash outflows from your business operations separately from any other inflows or outflows. This could include things like customer payments, vendor payments, interest income, dividends and other operational items.

The indirect method is a bit more simplified. It adjusts your net income for any timing differences between when you record accrual based items and when the actual cash is paid or received. This reconciles your net income to your actual cash. While this method isn't as detailed as the direct method, it's also not as susceptible to error.

Why Cash Flow Statements Are Less Useful Than They Appear

Regardless of the method used, cash flow statements are a very important piece of your financial picture. As mentioned previously, they show how cash moves through your business. That said, cash flow statements are historical in nature. They show you what your business did, but not where your business is going. To see that kind of information, you will want to use a cash flow forecast.


A cash flow forecast is a projection of all of your future cash flows. It is a best guess, based on all available information, of what you expect to happen in the future. This includes things like expected:

  • Sales
  • Expenses
  • Collections on accounts receivable
  • Payments of accounts payable
  • Asset purchases
  • Loan payments debt repayments
  • Sales taxes
  • Corporate tax refunds or tax payments

A good cash flow forecast will show you:

  • All of your cash receipts
  • All of your cash payments
  • And their precise timing

This will give you a clear picture of where your business is heading, and how much cash you will have on hand at any point in time.

Knowing where your business is going with a cash flow forecast is something to celebrate.

The Benefits Of Forecasting Cash Flow

We touched on some of the high level benefits of cash flow forecasting in our Definitive Guide To Managerial Accounting For Small Businesses. Simply put, knowing the future net cash flow of your business, and your estimated cash balance at any point in time gives you a lot of power as a business owner. You will be able to:

Predict Cash Shortages

By forecasting cash flow, you can see when your business might have a shortfall of cash. This allows you to take steps to avoid or mitigate the effects of a cash shortage, such as delaying expenditures, extending payments on accounts payable or shoring up working capital with short term debt.

Better Manage Your Cash Flows

Cash flow forecasting will give you a better understanding of how money moves within your business allowing you to more effectively manage your activities with operating cash. This can be particularly helpful if your business:

  • Is growing
  • Has seasonal trends
  • Is project based, with large and irregular inflows
  • Provides a lot of customer credit

Knowing when and how you will get paid, and how and when you will make payments will make you a lot less reliant on debt and lines of credit.

Make Better Business Decisions With More Confidence

A cash flow forecast will give you a better understanding of your business's financial health. This information can then be used to make better informed decisions about how to best use your resources.

Do you have enough cash to buy the equipment you need to grow and hit your sales targets? Can you afford to hire that stellar employee you interviewed? If you open a new location how will that impact your bank account in the short and long term?

Whether you have negative cash flow or a host of cash surpluses, thinking through exactly how you will progress your business, and knowing the effects of these decisions is an extremely helpful exercise. It will surely boost your confidence.

Track Your Progress

A cash flow forecast will help you track your progress towards your strategic business and financial goals. The information gleaned from the cash flow forecasting process itself can be used to adjust your budgets and your business plans, making these documents dynamic and more relevant as your operations change.

Being able to track business performance using cash flow forecasts will make you pretty excited.

The Different Types Of Cash Flow Forecasts

There are a number of different types of cash flow forecasts. Just like cash flow statements there are different methods you can use to create a cash flow forecast. And depending on your goals, the time frame you use in your cash flow projection should change.

Direct Versus Indirect Method

Similar to its cash flow statement counterpart, a direct forecasting shows the exact cash inflows and outflows that result from your business' operations. This is the more straightforward approach to cash flow forecasting as it directly ties to all incoming cash receipts and outgoing cash payments.

Indirect forecasting does not start with your business' operational cash inflow and cash outflows. Rather, it begins with your company's net income figure. From there, non-cash items and changes in working capital are added back into or deducted from the bottom line to get to a net cash flow figure.

Three Way Cash Flow Forecasting

Indirect cash flow forecasting is more common associated with three way cash flow forecasting. This cash flow projection method forecasts your income statement, balance sheet and cash flow statement and ties them altogether. Hence the term three way forecasting.

Three way cash flow forecasting is sometimes viewed as the most robust way to cash flow forecast. It eliminates a lot of possibility for errors, especially when using a spreadsheet, and also presents bank ready financial statement projections that can be used for lending purposes. This method is typically a lot more customized however, can take a lot more time to create and maintain, and sometimes isn't as easily understood by entrepreneurs.

Long Term Cash Flow Forecast

Long term cash flow projections are typically forecast from one year to five years out, with most going to three years in range. This type of cash flow forecast is most often associated with strategic planning and indirect/three way cash flow forecasts. These types of estimates are often used to:

  • Validate and test business ideas
  • Supplement business plans
  • Raise equity
  • Acquire bank financing

Short Term Cash Flow Forecast

A short term cash flow forecast is much more operational in nature. It can range from days to months in terms of time frame, and often does not go beyond a year. This type of forecast is much more granular in nature, and has much more accurate information in terms of timing. It is often updated quite frequently, as regular as weekly forecasts or daily, and is ultimately used to answer the question "do I have enough cash to do X?" in the near term.

The Key Difference Between Long And Short Term Cash Flow Forecasts

The biggest difference between a short term and long term cash flow forecast is its use. Long term forecasts are more strategic, while short term forecasts are more operational.

The best analogy is a road trip using a map. A long term cash flow forecast determines exactly where you are going and loosely determines how you will get there. A short term cash flow forecast is used while you are driving to that destination, constantly shifting due to traffic, construction and road closures.

It is often a best practice to use both a long term strategic and a short term operational cash flow forecast.

Using both a long and short term cash flow forecast means you know exactly where your business is going.


An accurate cash flow forecast can be a game changer. Whether you're a professional, such as a veterinarian, dentist, chiropractor, optometrist or lawyer, or a founder of a startup or a web3 company, you will experience cash flow issues. Studies show that the vast majority of business owners have at least once in their lives.

Knowing exactly when that cash flow issue will come, and what you are able to do to mitigate the problem is a definite advantage. One that will let you sleep a whole lot better at night. And that's exactly why cash flow forecasting is a must-have tool.

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