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6 ways cashflow forecasting can benefit your business

Louise Hastings

Maintaining a healthy cash flow is a challenge for most business owners. 

Despite being a cliché phrase, “cash flow is king” continues to drive a harsh truth – a lack of funds is one of the main reasons businesses go under.  

Therefore, cash flow forecasting is a vital exercise for businesses to undertake. 

Even if your business is currently sitting with an adequate amount of money in the bank right now, forecasting is essential to ensure your business has enough money to remain afloat – and more – over the upcoming months. 

Below, I discuss six reasons why you need to start forecasting your cash flow today. 

1.    Take advantages of being cash-rich 
An extended period of strong sales and multiple projects finishing at once can lead to a very healthy looking bank balance for businesses and freelancers. 
The ability to see or predict an influx in revenue can provide you with advantages when it comes to planning. 
During a cash-rich period, it could be an appropriate time to invest in new equipment and resources, expand your staff levels or even take some hard-earned cash out for yourself. 
By forecasting your cash flow, you will know when it is an appropriate time to do this.

2.    Prepare for tough times
Cash shortages cause multiple problems for businesses and can be due to any number of factors. 
Forecasting your cash flow will allow you to notice potential tough periods and take the necessary precautions to see you through.  
This could be tightening credit agreements with your customers to get money into the business faster, or even take out a short-term loan to cover the shortfall. 
Prevention is always better than cure.

3.    Cut expenses
A direct cash flow uses information from accounting software, which gives a real-life view of transactions both in and out.
Paired with the latest information from your bank feed, this allows you to compare budgets with actual spending – highlighting overspending and all in real-time. 
This data can be used to boost your bottom line, pinpoint areas where cutbacks can be made and thus increase your profit margins.  

4.    Develop a good reputation
Successful businesses do not just survive by creating great products and services, good business relationships are essential for businesses to thrive and grow in the modern world. 
By not cash flow forecasting, you could jeopardise some of your business relationships – in particular with your suppliers. 
Being unable to pay your suppliers on time due to a lack of funds could earn you a bad name. Cash flow forecasting will allow you to stay on good terms with them and develop a reputation as a business that does things right. 
Forecasting your bank balance will help you find the right time to pay your bills and highlight any future payment problems. Allowing you to negotiate terms or manage expectations from the offset. 

5.    Improve your credit control
One of the biggest problems businesses face is credit control – especially when customers and clients pay late. 
Effective credit control processes are vital in ensuring your cash flow is healthy. 
A cash flow forecast can help you identify late payers and take corrective action. 
Many cloud accounting software solutions and extension applications can generate cash flow forecasts that take into account outstanding debtor invoices and bills from current creditors. 
They can also produce a variety of models to show scenarios of different payment dates that can allow you to assess the maximum amount of time you can wait for your money. 

6.    Plan for the future
Ultimately, a cash flow forecast will allow you to evaluate your business’s plans and come to  a decision as to whether they are feasible. 
You might want to expand in to new premises, raise investment, or employ more staff – cash flow forecasting is the essential tool to help you see the impact these decisions could have. 

These are just a few reasons why you should start forecasting your cash flow if you do not already. If you would like more information on forecasting and how we can help, please contact your local Moore office today.