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How Cash Flow Forecasts Can Help You

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Posted on: July 7th, 2020 by Austen | | Categories: Uncategorised

How Cash Flow Forecasts Can Help You

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Here are some more of our thoughts regarding post lockdown business recovery:

How Cash Flow Forecasts Can Help You

Managing cash flow is a vital part of running a successful business. Some business owners think that managing cash flow simply means keeping track of how much money enters and leaves their business but there is actually a lot more than that to successful forecasting.

By planning your cash flow forward, for example, you create an incredibly valuable tool that helps you to anticipate future cash flow issues, plan for those times when your cash flow is restricted and show your bank that you are prepared.

It is an important process and here are some of the ways that cash flow forecasts can help businesses:

1. They Help to Identify Cash Flow Issues Before They Happen

Most businesses go through slow periods. Sometimes those periods can be predicted and are expected. A seasonal business, for example, will have reduced income during the off season.

Your cash flow forecast can help you monitor your day to day cash flow and anticipate when times might be slow before they hit. By anticipating when cash flow will be slow, or when you might have to spend more than usual, you can avoid a cash crisis.

By examining your cash flow over the previous years and forecasting accordingly, you can better anticipate cash flow cycles and how they affect your business.

2. They Help to Plan for Tougher Times

It is tempting to spend money when you have got a lot coming in. Your business may need new equipment or you may want to give your employees a bonus. That’s a great thing to do but it is only helpful if it doesn’t put your business in a difficult financial position later.

Cash flow forecasting is a great reminder about how your bank balance will look during leaner times so you can make important decisions about when to spend your money and when to save it.

If you know that a slow period is coming up then it might be better to save your money for now and give out smaller bonuses. If you can anticipate your slow period then you can plan major purchases and invoice payments to stretch your cash further.

3. They Show Banks that You can Plan Ahead

Banks prefer to lend their money to entrepreneurs who can show that they are capable of planning ahead. They prefer business owners who are realistic with their financial projections and show that they have an understanding of their business cash flow.

For many businesses, the only time that they will prepare any meaningful forecasts for their business is when they want to borrow money from the bank. Once the loan/overdraft has been received, those forecasts disappear into the depths of a bottom drawer, never to see the light of day again.

Here at Balance, however, we believe that cash flow and Profit & loss account forecasts should be prepared each year and then referred to on a regular basis as a tool to monitor and control your business. It is amazing how you are able to get such a better insight into the mechanics of your business when you prepare forecasts.

If you are interested in having some forecasts for your business then we will be happy to help. Just call us for a chat to see what we can do for you!

 

 

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