A Cash Flow forecast is not ‘an interesting piece of information’ to have, it’s an essential tool for your business planning. You could say that every business should have one. It will help to identify if there are peaks and troughs in your business. It will identify that perhaps more money comes in (inflow) or goes out (outflow) at a particular time of year. The forecast usually covers a period of 12 months with a month-to-month analysis, although some businesses may require a day-to-day analysis and larger companies may need to produce a cash flow forecast for 3-5 years. In the latest article from Caroline Streatfield Bookkeeping based in Eastbourne in East Sussex, we look into the definition of a cash flow forecast, how it will help your business and why you need one.
What is a cash flow forecast?
This predicts the net cash flows of your business for a future period. It determines what will be coming into your bank account and what will be going out. By discovering these figures, you will have an estimate of your bank balance for each period covered, for example each month. In the perfect scenario, you will be looking for your cash inflows to be more than your cash outflows. The elements involved in a cash flow forecast are the opening balance, monies received, monies going out, the difference between these which can be a negative or positive figure and of course your closing bank balance.
How will a cash flow forecast help your business?
If you are a new business, it will initially help you to identify how much capital you need for your start-up costs and cover initial trading.
- Highlight any shortfalls in your cash balances
- Identify any increases in costs
- Give the trading performance of your company
- Analyse your business to check it is performing as you want it to
An early warning system for you to take the necessary action
If there is a potential shortfall in income, a cash shortage or increases in your costs are expected, it will act as an early warning system and give you the opportunity to take action. This could determine if you need a loan or an overdraft and if you do need to borrow money, how much your business can afford. It will also act as a guide so that you can stay on track and remain within your financial limits.
Why do you need a forecast?
- To pay suppliers and employees
- Your bank may want to see it
- Helpful for financial planning
- Keep track of overdue payments
- Plan for shortfalls
- Manage surplus cash
The bottom line is that you need a healthy cash flow
It may be a clichéd saying but in business, “Cash is King”! Without a healthy cash flow, your business won’t survive. And it is particularly important for SMEs and start-ups to know where they stand in financial terms. If you know in advance that you have a potential shortfall looming, you can do something about it.
Contacting Caroline Streatfield Bookkeeping for your cash flow forecast
Used effectively, a cash flow forecast is a very valuable tool to have for your business. It is in essence central to maintaining the financial stability of your company. If you need help with your cash flow forecast, why not talk to the experts at Caroline Streatfield Bookkeeping? We work with a lot of start-ups and SMEs who find keeping track of their finances essential for keeping their companies running smoothly. For more information, call Caroline on 07982 682746 or 01323 885205 or email info@bookkeepereastbourne.co.uk
