Regardless of the business size and longevity of its operations, cash flow forecasting holds an integral role in decision making. It’s all well and good that business owners (like yourselves) know the ins and outs of their company, especially when it comes to future expectations of your profit and loss accounts.
However, what you would not necessarily know about it, is how and when changes to sales and other general business costs influence your bank statement. According to the Hacket Group’s study of operating cash flow forecasting, more than 100 global companies (with annual revenues averaging £4.5bn) do not use cash flow forecasting when planning their next steps (2-3 months in advance). We can see from this study (alone) that these large companies are still not acting to improve their capabilities.
What is Cash Flow?
Cash flow forecasting is the process of obtaining an estimate or forecast of a company’s future financial position and is a core planning component of financial management within a company. The main output or deliverable of a cash flow forecasting process is a cash flow forecast. A cash flow forecast is a projection of an organisations future financial position based on anticipated payments and receivables.
So Why is it Important?
The importance of cash flow forecasting and monitoring is often overlooked, but it is a key indicator of a business’s future success and longevity. With the economy recovering from the pandemic, this type of environment requires companies to have higher awareness when understanding their current cash position and how much cash they require for the next steps of their business strategy making. Cash flow is the lifeblood of any business, so it makes sense to understand all the nature of it within your business. Without cash, your business could be insolvent unless it can quickly obtain new finance, this is why cash-flow forecasting is so important. In most cases, a crisis like this can be avoided if you plan and prepare for it.
Cash-flow forecasting allows you to do exactly that, it provides you with the foresight to see any potential crises before they happen, giving you and your (chosen accountant) time to create a solution to this problem. Doing so with this level of planning can help your business in becoming a competitive differentiator within the market which is critical to realising your strategic goals.
Much like how you might check the weather forecast so that you can dress appropriately for the conditions outside, a cash-flow forecast will help you to prepare your business for the future financial climate. There are many instances where you might need a cash-flow forecast. Some of the most important include making sure suppliers and employees can be paid on time as well external stakeholders (like banks) requiring regular forecasts for approval of their services.
Could your business benefit from our cash flow forecasting service? Get in touch with us for a free consultation and we can help you identify your options.
