You need A Cash Flow Forecast

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 –

Performance improvement

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.

Cash flow forecast example
Cash flow forecast example

Credit control

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.

Running scenarios

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.

Conclusion

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.

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