‘Cash flow forecasting’ is a fancy term for estimating your future sales and expenses and working out how much money you’ll have within your business at any given time.
Knowing how much you have in the bank right now – and being able to accurately predict how much capital you will have to run or expand your business further down the line – is an incredibly important part of running your business. Without having this information to hand, you will struggle to make informed decisions and grow your venture in a sensible and sustainable way.
There are many benefits to calculating accurate forecasts (or getting an experienced bookkeeper or accountant to look at the numbers for you!) Regular cash flow forecasts will help you:
Keep track of overdue payments
Though a few late payments here and there are unlikely to cause a significant problem, transactions that are consistently delayed will eventually have an impact on how much cash is available within your business. Cash flow forecasting can help identify any areas of concern in your credit control department and mitigate any slumps in growth due to those pesky late payers.
Plan for cash gaps
Though a few late payments here and there are unlikely to cause a significant problem, transactions that are consistently delayed will eventually have an impact on how much cash is available within your business. Cash flow forecasting can help identify any areas of concern in your credit control department and mitigate any slumps in growth due to those pesky late payers.
Make good use of any surplus capital
Got a bit of extra cash in the bank? It’s rare, especially these days – but it does still happen! Cash flow forecasting enables you to identify how much money is going spare so you can confidently use these funds to chip away at your loans, fund new hires, or reinvest in new markets to generate a healthy return.
Track your goals
If you have revenue objectives for your company (which you absolutely should!), they are likely to be time-sensitive. Forecasting provides you with a useful breakdown of where your cash is going, how your cash flow is affecting your budget, and whether you’re on track to reach your financial milestones. If your cash movements are holding you back from achieving your goals, it could be time to either make adjustments to your cash collection processes or reassess how realistic these targets are.
Get investment
If you are looking to secure funding for your business, you’ll need to provide potential investors with a snapshot into your financial affairs. Cash flow forecasting can create a picture of your company’s overall fiscal health, plus help any new stakeholders plan for the best- and worst-case scenarios.
If you’d like to learn more about how case flow forecasting can help you better understand your financial position and plan more diligently for your company’s future, get in touch with EB Bookkeeping today.
