CASH FLOW FORECASTING

 

Cash flow is the life-blood of the business and it is essential to predict what will happend if you are to survive.

 

A business can be showing a profit but still run out of cash if receipts from sales are slow to come in and suppliers and wages have to be paid. Sometimes the focus can be too much on profit, without thinking about cash flow, but if a business runs out of cash without being able to obtain new finance, it will become insolvent. Cash forecasting can allow you to remain in business while you wait for the profit you’ve made, to become cash in the bank, as customers pay you.

 

Here are some important reasons to keep cash in focus:

 

Cash flow can be cyclical, where customers invariably pay late, while wages and suppliers simply won’t wait. Thus cash flow forecasting can be an early warning systems to advise you where the pressure points are.

 

Focusing on cash flow can encourage you to make sure your customers pay in good time. If you’re a retailer and take cash or credit cards at the point of sale, this isn’t so much of a problem, but business to business selling can lengthen the time from sale, to receiving cash. Good forecasting can spot problems with customers, and take action to ensure timely receipts.

 

It’s important to that you can pay suppliers, who might put you ‘on stop’ for non payment, and have money to pay your employees, who will quickly get disgruntled or refuse to turn up if wages are unpaid. Both are vital to keep the business going forward, so making sure they get paid is a priority.

 

Banks and stakeholders are likely to require regular forecasts, and cash flow is undoubtedly something they will look at because of the ‘early warning’ importance described above.

 

If you would like us to prepare a cash flow forecast with you, please