Your actual cash flow results will probably be different from the amounts you have budgeted in your cash flow forecast. If you're fortunate, the variance is on the positive side. If your sales end up being, say, 10 percent higher, or your expenses are 10 percent lower than you budgeted, it's a nice situation to be in.
If your actual cash flow results are better than expected, you need to ask yourself why that's true. Is your new business making more money than you had anticipated? Go back to your original plans to see what is helping your cash flow. You will want to expand on the items that are having a positive effect.
Suppose, for example, every time you advertised in the newspaper, your sales increased by 10 percent the following week. In this case, you may want to gradually increase your advertising budget until you see that sales are not increasing proportionately to the amount spent on advertising.
You need to plan for when actual cash flow results are lower than the expected results before it happens. You should not plan your cash flow forecast so tightly that a small variation in actual results can have a significant effect on your ability to keep your business going.
Before you sink a lot of money into your new business, you should perform a sensitivity analysis on your cash flow forecast. This will show you what will happen to your expected cash flow when your actual cash flow results are different from what you had originally budgeted.
The cash flow sensitivity analysis should be performed by everybody contemplating opening a new business. This analysis will show you what will happen when your cash flow forecast is off. If your sales are actually five percent less than what you projected, will it change your decision to open a new business? In some instances this five percent decrease will make your new business idea a cash drain. When you're planning your new business, plan for both contingencies. Have a viable plan whether your cash flow forecast is better or worse than expected.