You may think that cash flow forecasting is only for businesses in a cash crisis. That couldn’t be further from the truth.
A cash flow forecast can be a valuable growth tool, allowing you to make sure you have the right amount of money at the right time. Forecasting your cash can help you anticipate cash gaps and surpluses well in advance. Here’s why every business needs cash flow forecasting.
Notice cash shortages
A robust cash flow forecast can help you spot cash gaps far in advance, allowing you to take action. This means that you can negotiate better loan rates, tighten up your credit control systems, and manage expectations with your suppliers.
Forewarned is forearmed and being aware of impending cash shortages can mean the difference between saving your business and waiting for insolvency.
A cash gap may mean that you have to apply for funding. Online lending tools such as Fundbox provide flexible lending options to businesses looking to plug a cash gap.
Use a cash surplus to grow
For growing businesses it’s important to notice, and take advantage of, a cash surplus. With cash in the bank you have the opportunity to invest your money and grow your business. Seeing a healthy figure in your bank may be great but dust is the wrong thing you want your cash to be accumulating.
Cash flow forecasting enables you to know exactly how much you can reinvest in your business and when. By including a cash flow forecast in your financial management systems you can ensure that your business grows at a safe and healthy pace.
Forecasting software like Float can enable you to visually spot cash shortages and surpluses with enough time to take action. With intuitive forecasting that can look up to 3 years in the future, Float offers all the peace of mind of cash flow forecasting with the added benefit of automatic updates pulled directly through from your accounting software, saving you hours every month.
Gain confidence in your financial systems
Profitability doesn’t necessarily mean that your business will grow, or that you have cash in the bank.
The answer to this lies in the processes and tools used in your cash management. A profit and loss sheet will only tell you part of the story. Without a strong grasp on your available cash, you’re not getting a true picture of your business’s finances.
Cash flow forecasting can show you where you need to tighten payment terms, cut operating expenses, or hire new staff to carry the workload. Seeing the minutiae of how your cash actually moves in and out of your business can help you to identify areas in which you can improve cash inflows and outflows.
Regular cash flow forecasting is an essential part of business planning. It can make you aware of changes to your finances before you hit crisis point. Improving your awareness of how and when money is moving in and out of your business strengthens your ability to make the right decisions at the right time.
This guest post was written by Catriona Bane of FloatApp. Any opinions, analyses, or reviews are those of the author.
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