Why a cash flow forecast is the lifeblood of your business
In its simplest form, cash flow is the movement of money in and out of your business. It could be described as the process by which your business uses cash to generate goods or services for the sale to your customers , collects the cash from these sales and then completes this cycle all over again, therefore, a cash flow forecast is the lifeblood of your business.
When developing your cash flow forecast it is critical to take the following into consideration:
- How much cash does my business have?
- How much cash does my business need to operate, and when is it needed?
- Where does my business get and spend its cash?
- How do my income and expenses affect the amount of cash I need to expand my business?
Before you can answer any of these questions you will need to identify if all your company financial statements, budgets and other data is accurate and up to date. Developing a cash flow forecast without this knowledge is like building a house that has no foundations, eventually it will come crashing down around you.
The best way to avoid this is to make sure you have an experienced financial manager or financial director who can prepare and interpret all the necessary information and data. The problem is that many small and medium size businesses don’t have an experienced financial manager either because it is perceived that a full time resource is not needed or the cost is simply too high. If this is the case in your business then be advised that there are reputable companies that outsource brilliant financial managers on a part time or project basis. These part time financial managers are able to quickly asses and interpret financial statements, assist with formulating budgets and develop realistic cash flow forecasts for your business.
A cash flow forecast is the lifeblood of your business
