Cash Flow Forecasting: Why your Business Must Know the Future
As a small business, it is imperative that you are able to estimate your cash flow in advance so that you can be prepared for any unexpected expenses that may arise. You can achieve this by ensuring you are up to date with cash flow forecasting.
Cash Flow Forecasting Rules and Principles
By ensuring you have an adequate cash flow forecast, you will be able to foresee any rises or drops in your finances. A forecast will allow you to plan for any future borrowing of money as well as telling you how much excess money you may have at any given time. Additionally, cash flow forecasting can be very useful for a business if you require a loan, as many lenders will only consider you for finance after seeing a healthy cash flow forecast.
Aspects of a cash flow Forecast
A cash flow forecast works by clarifying incoming and outgoing expenses, detailing what your money is being spent on, to whom it is being paid and from whom it is being received.
The forecast will normally be set out for either a year or quarter in advance, and is divided up into weeks or months. For best results, choose a time when most of your outgoing expenses are fixed, such as salaries or rent payments.
It is essential that you base your original sales forecasts on realistic estimates. If you have a well established business, you could combine sales profits for the same period 12 months earlier with expected growth.
Your forecast should be an ongoing instrument and will need to be continually maintained and adjusted to fall in line with any long term changes to actual performance or market developments.
Professional Cash Flow Forecasting
Whilst a vital part of running your business, in reality cash flow forecasting can be a time consuming task. The best course of action is to place it in the hands of a professional bookkeeping company that offers a dedicated cash flow management service. That way, for a reasonable outlay each month, you can get to see exactly where you are with income and expenditure and so plan ahead effectively: something that is vital for the healthy growth of your business.
