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Why Cash Flow Forecasting Is So Important For Businesses

As the saying goes, failing to prepare is preparing to fail.

While lack of planning does not always result in the demise of businesses, it can play a strong contributing factor.

One important planning tool available to companies of any size is a cash flow forecast. This service usually comes as part of a greater account services package but is essential for a new business or for existing companies looking to raise finance.

Cash flow forecasting software might be found as part of a larger bookkeeping service, like Quickbooks.

What Is a Cash Flow Forecast?

To be successful, a business must stay on top of cash flow. In simple terms,
cash flow refers to the money coming in and going out from a business.
The money comes in from sources including:

⦁ Customer payments
⦁ Receipts of loans
⦁ Monetary infusion from investor(s)
⦁ Interest on savings/investments

The money goes out for everyday processes and operating costs like:

⦁ Paying taxes
⦁ Purchasing inventory or materials
⦁ Paying employees
⦁ Paying rent

A direct forecast is more short-term, and ultimately shows the cash required to fund working capital. It is projected by a simple cash flow forecast template that analyses upcoming payments and receivables.

An indirect forecast is more long-term. This ultimately shows the cash required to fund capital projects and growth strategies to benefit the company in the long run. This is projected a cash flow forecasting model that analyses income statements and projected balance sheets, among other documents.

Why Is a Cash Flow Forecast Important for Business?

The main goal of a cash flow forecast is to help manage a company’s liquidity.

This way, we can ensure the business has the necessary cash to successfully manage working capital. It analyses the current and future financial state to keep the company on track to meet obligations and avoid funding issues.

Experts urge companies to prepare projections and cash flows—especially in a time of such financial uncertainty. Though it is difficult to forecast too far ahead given the new normal we are living in, the more ahead we can get, the better.

Calculating Our Own Cash Flow Forecast

Keeping cash flow in check can make or break a company, regardless of the size of the operation. By managing liquidity and projecting future financial positions, we .can stay one step ahead.

An experienced, professional bookkeeper can help you accurately develop a cash flow forecasting model.

Contact an expert today to see how your company can benefit from implementing a cash flow forecast.


Our team of Accountants and Bookkeepers provides our clients with peace of mind knowing that their numbers are in order.

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