The Importance Of Cash Flow Forecasting In Your Business

One of the biggest challenges facing business owners today is cash flow forecasting and maintaining a healthy cash flow.

One tool that can help you is a cash flow schedule or budget, which is simply a forecast of the amount of cash you expect to flow into and out of your business over any given period.

This is a tool that enables you to see how much cash you need to operate your business as well as identify any shortfalls or surpluses in your cash position.

How to Manage Cash Flow

Even if you have just started running a business you must certainly know that cash flow is king.  If you do not have enough cash tocentral coast small business accountants cover your costs at any given time, your business is more or less doomed to failure.

In order to prevent this from happening, you have to know how to manage the financial and operational aspect of your business effectively.

Financial prudence is the main factor necessary for managing cash flow.  Simply put, you should always provide for not getting as much cash in as you are anticipating.

Anything may happen and you may not get as much money as you expect at the time when it is supposed to come in.

In much the same way, emergency costs may occur or you may have no choice but to make advance payments, so you must provide for such situations in advance.

Prepare a Cash Flow Schedule

This is the best method for managing cash flow when running a business. In this way you will be able to keep everything under control and be prudent at the same time. Such a schedule is not hard to prepare.

As a start, you have to make such a schedule for each month at the end of the preceding month. This is a useful rule of thumb as most costs are incurred on a monthly basis while revenues are also accounted for monthly.

There are three components that you need in order to prepare the monthly schedule.  You have to sum up all the cash you have at hand at the beginning of the month.  Then you have to project the inflow of cash into your business.

You have to be able to figure out how much cash you will get and when.  Similarly, you have to make projections about the outflow. You need to anticipate how much cash you will have to pay and when.

The final step is to put all the projected figures into a spreadsheet with sections for each day of the month.

When running a business there are ready made templates that you can use to make your work easier.

The benefit of having completed a cash flow schedule is that you will have a clear understanding of how much cash is available to cover your expenses.

With any luck you will always have more cash than you need, but for most businesses there will be shortfalls on occasions. This is where the cash flow schedule can be of most benefit to you.

It will help you make a confident decision about how you might address the shortfalls in cash, including what finance you might require to cover those short falls.  It will also help you identify where you have surplus cash so that you can make informed decisions about investing those funds.

Cash Flow Forecasting and Planning

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