Understanding a cashflow forecast
A cashflow forecast helps you to understand your business position at anytime in the year. It shows you how much money you are expected to receive and pay out of your business, over a certain period of time.
Why should your small business have a cashflow forecast?
Cashflow is an ongoing process, where you need to track, monitor and act on the numbers you see in your regular cashflow statements.
Poor cashflow is the main reason for most business failure. Knowing the future cash position of the business becomes a key factor when it comes to budgeting and forecasting.
Cashflow forecasts can be flexed to improve the business’ cash position before forecasts are finalised. Both poor performance and strong growth lead to weak cashflow. It is crucial to know which applies to your business. A negative cashflow position can be due to a number of factors, whether it’s insufficient sales, slow payment of invoices or poor cost management. The solution to these issues is to take a proactive and holistic approach to improving the company’s cash situation. Here are a few ideas on how you could boost your cash position:
- Improve your sales and marketing – creating more sales and boosting income
- Make it easier to get paid – by using the latest in payment tech to speed up payment times
- Track and manage debts – chasing any late payments to reduce your aged debt
- Manage spending effectively – and start to track, review and reduce your costs
What are the benefits?
A cashflow forecast is not a document that remains static and many variables and external drivers are changing each day. We recommend running frequent forecasts. This will also give you the tools to be able to navigate the future path of your cashflow. By modelling alternate scenarios, we can help business owners understand how various situations will impact their cash flow.
Having access to detailed forecasts helps you to scenario-plan, search for cost-savings and look for strategies that will preserve your cashflow position. Remaining in control of the cash coming into (and going out of) the business is the real focus, so you can accurately predict your financial position and can resolve any issues.
Digital accounting systems such as Xero allow you to see how your cash inflows and outflows will pan out over the coming months. It is essential for any business owner to have knowledge of the current and future cash position because it allows you to make informed business decisions, with found financial information.
Please let us know if you have any questions. We would be more than happy to help you with your own cashflow forecast if required.
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