Why Your Business Needs Cash Flow Forecasting
Regular cash flow forecasting is an essential part of strategic planning to fuel growth.
By Gregory Brickner
[post_published] • 4 min read
A regular cash flow forecasting routine is a catalyst to achieve your growth goals. The forecasting process will force you to do the mental exercise of working ON your business instead of merely IN it. The forecasting exercise forces you to strategize the actions your business needs to take. You begin to see the financial impact decisions in your business to anticipate success as well as failure. This regular exercise of updating your assumptions will drive growth and prepare you to have the right amount of money at the right time. Here’s why your business needs cash flow forecasting.
Anticipate cash shortages
A robust cash flow forecast will help you anticipate cash gaps far in advance, allowing you to take action. This means that you can negotiate better loan rates, tighten up your credit control systems, and manage expectations with your suppliers.
Forewarned is forearmed, and being aware of an impending cash shortage can mean the difference between saving your business and waiting for insolvency.
A cash gap may mean that you have to apply for funding. Online lending tools such as Fundbox provide flexible lending options to businesses looking to plug a cash gap.
Fund growth with surplus cash
For growing businesses, it’s important to notice, and take advantage of, a cash surplus. With cash in the bank, you have the opportunity to invest your money and grow your business. Seeing a healthy figure in your bank may be great, but dust is the wrong thing you want your cash to be accumulating.
Cash flow forecasting enables you to know exactly how much you can reinvest in your business and when. By including a cash flow forecast in your financial management systems, you can ensure that your business grows at a safe and healthy pace.
Forecasting software like Float can enable you to visually spot cash shortages and surpluses with enough time to take action. With intuitive forecasting that can look up to 3 years in the future, Float offers all the peace of mind of cash flow forecasting with the added benefit of automatic updates pulled directly through from your accounting software, saving you hours every month.
Better understand the financial impact of daily decisions
Profitability doesn’t ensure success, mean that your business will grow, or indicate that you have cash in the bank.
Cash in the bank is the result of the financial decisions made daily during the course of business. The process and tools you use to manage cash will help ensure success.
The profit and loss statement will only tell you part of the story. Without a firm grasp on your available cash, you’re not getting a real picture of your business’s finances.
Cash flow forecasting will show you where you need to tighten payment terms, cut operating expenses, or hire new staff to carry the workload. Seeing the minutiae of how your cash moves in and out of your business can help you to identify areas in which you can improve cash inflows and outflows.
Regular cash flow forecasting is an essential part of business planning. It can make you aware of changes to your finances before you hit a crisis point. By improving your understanding of money moving in and out of your business, you will strengthen your ability to make the right decisions at the right time to drive growth. It is time to start building your cash flow forecast.