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July 24, 2015 0

A solid, feasible and reliable cash flow forecast is extremely important to a successful business. In fact, this is perhaps one of the most essential financial planning tools a business can possess. Maintaining better management over your Income and Expenditure will ensure you remain in complete control over your business’s primary lifeline – the budget!

This is especially true for new start-up businesses and SMEs that need a cash flow forecast to project potential income revenues and expenditures. These two elements will fluctuate depending on investments and sales, allowing a business owner to accurately plan future investments around their budget.

Controlled Growth Opportunities

Cash flow forecasts can also help established businesses identify controlled growth opportunities. This can be done by altering sales income to reflect certain ‘what if’ situations; for example, ‘what if sales exceed expectations?’ The sales figures will be changed to adopt this potential situation, so that business owners know what to expect and how to act should that possible situation turn into an eventuality.

Although cash flow forecasts will not provide all the answers, they will provide an accurate insight into what may happen, affording business owners the opportunity to plan for good and bad times ahead.

Identify Client Payment Problems

Preparing an accurate cash flow forecast can help you spot problems with customer payments. This will encourage your bookkeeper to look at how quickly or slowly your customers are paying their debts. Of course this is not particularly useful for businesses that take their sales in cash at the point of sale.

Accuracy is Vital

A cash flow forecast is a live document that will need to be updated frequently with accurate financial data; helping you plan ahead as a business. Just the act of entering these details alone will provide an accurate idea of how your forecast will look moving forward. You can then flex the data accordingly. This is not fixed data and it should be treated as a management tool, therefore accuracy of data is extremely important.

If you would like some more information on cash flow forecasting please contact the team here at Clarke Bell. We’ll be more than happy to help.

Take a look at our corporate case studies to see how we helped to turn around businesses and their cash flow problems.

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