You may be wondering why cashflow forecast is important. You may have heard a lot about cashflow forecasting and it may have been even strongly suggested to you. But what is cashflow forecasting really ? Do you need this for your business ? What is it useful for ? If you are troubled by some or all of these questions, you have come to the right place, because we will unpack this for you in this blog article.
1. Cashflow forecast helps you grow your business
The most prevalent reason why business go bankrupt is because they run out of cash. And in turn, this most surely caused by a lack of cashflow forecast. In other words, business owners and decision makers do not have a system of keeping track of their cash and do not know how their flows in and out of the business.
This could be well prevented with cashflow forecast, allowing business owners and decision makers understand how their cash flows in and out, plan how to manage and control it. They would also understand what their buying and investing strength is. In other words, they would know to cut their coat according to their cloth.
By looking at monthly expenses in detail on the cashflow forecast, it is easier to see what your business is spending money on. This can prompt business owners and decision makers to assess individual cost factors. This enables efficient cost control and helps businesses to work out what the best costs are in the long run.
2. It helps you plan your investments better
The cashflow forecast shows you if you can expect high surpluses in the coming months. Then it is easier to plan for the best time to invest in your business: do you build up reserves, do you invest in the capital market, or do you expand production capacity ? Every single one of these is a very important decision to make on which you cannot go blindly or poorly informed.
3. It helps you know how much funding you could get
If you are not clear about the cash coming in and out of your business, you cannot know how much money you could get as funding to invest in your business. Once you understand how much funding you need, you then know what type of funding to apply for: whether just an overdraft or asset finance or maybe even a long-term loan.
4. It identifies slow periods in your business
Cashflow forecast identifies how money flows in and out of your business and this means you can plan your projects such that you do not run out of cash. If, for example, summer is a slow season for you, then you can wait until September or the following months to spend your cash on capital expenditure.
5. It gives you time to prepare
Cashflow forecast helps you with planning ahead and gives you time to save for future events. It can be used to anticipate cashflow shortages. If you become aware that a shortage of cash is coming in a few months’ time, you can plan to prevent it because, if detected early, business owners and decision makers can take measures to mitigate the effects of the shortage.
Business owners are often bogged down stressing over their cash. Is there enough to pay the salaries ? Is there enough to pay the tax liability ? Is there enough to pay the monthly business expenses ? Fear of running out of cash can result in mental health challenges. This is why you should have a system in place that informs you and helps you plan not just for a survival mode, but for business growth. And this is why cashflow forecast is important, actually it is essential for the success of your business.
How can LAS Accounting help ?
LAS Accounting Ltd can help you with the cashflow forecast, saving you time and money to focus on doing what you do best – running and growing your business. We can also help you understand your business finances, monitor your cash balances, plan for future tax liabilities and pinpoint trends to help support important business decisions.
Now might be the ideal time to engage the services of an accountant to do all the work for you and provide you with all the accounting advice you need.
Don’t hesitate to get in touch for any further enquiries at: firstname.lastname@example.org