Many businesses find themselves unable to fulfil orders or pay bills due to a lack of cash. If you want to achieve your expectations and avoid insolvency you need a cash flow forecast. Here are a few examples of how a cash flow forecast will assist you –
If you compare your actual cash receipts and payments with those predicted in your forecast, you’ll be able to pinpoint where adjustments are needed in your business and act accordingly.
If you sell on credit you need to exercise good credit control. Your forecast will note when the payments are due and remind you to take steps to avoid potential problems caused by late-paying customers.
Identifying a potential shortfall
Rising prices, falling orders, or other circumstances may trigger a cash shortfall. Your forecast will enable you to anticipate the problem and take action before it happens.
Identifying a potential surplus
If your forecast predicts a cash surplus you can plan to re-invest the money or use it to repay existing loans.
Adjusting your forecast for the best and worst case scenarios will give you an indication as to how well your business will cope in extreme situations.
Keeping stakeholders appraised
Banks, investors, et al will be reassured by a thorough cash flow forecast that takes into account every likely scenario.
You need a cash flow forecast because you need to know how much cash your business has now, and is likely to have in the medium to long term. Preparing a forecast will definitely help your cash management, but it can be a time consuming process and you should consider asking a bookkeeper or accountant to prepare one for you.
Need a little help?
My Accounting Emails are for business owners who want a better understanding of their financial position. They’ll help you manage your cash flow and stay in the black.
Need more help?
The Discovery Call is your opportunity to learn about me and how I can help you achieve your goals. Book your one hour call to get an Action Plan written especially for you.
“As a small business it is important to always have financial clarity and often it is difficult to try and do this yourself. Paul has worked with us for several years and has streamlined and organised all of our accounting systems. He provides us with a complete accountancy service and is very professional in his approach as well as being a likeable guy.” - D. Walsh, Director. DualTEC Services Limited, Keighley. (Google review)
“Paul has done a great job putting my accounts on to Sage Business Cloud, and also got a discount for me. I like that the software is MTD compatible and I can access it from anywhere. Paul sorts out all my invoices, does my bookkeeping and produces reports every quarter (or whenever I need them). He is friendly, reliable and easy to work with - it's good to have him on board." - C. Milne, Proprietor. CAM Properties, Carnforth. (Google review)