Cash flow is the lifeblood of any business and the benefits of cash flow forecasting really helps business owners anticipate and plan for future financial needs. However, many business owners make the mistake of only forecasting cash flow on an annual or semi-annual basis. In reality, best practice means generating a reviewed and updated 13-week cash flow forecast on a regular basis, preferably weekly.
Here are some of the benefits of cash flow forecasting:
- Improved Planning and Budgeting. Implementing a 13-week cash flow forecast that you review on a regular basis, business owners will anticipate future financial needs and plan accordingly. This helps them create budgets and financial plans that are more realistic and effective.
- Increased Visibility: Regular cash flow forecasting allows business owners to see more clearly how money is flowing in and out of their business. This can help them identify areas where they may need to cut costs or increase revenue.
- Better Decision Making: With a clear understanding of future cash flow, business owners can make more informed decisions about investments, expansions, and other financial commitments. They can also identify potential financial risks and opportunities, such as upcoming expenses or unexpected revenue streams.
- Maintaining Solvency: By forecasting cash flow on a regular basis, business owners can ensure that they have enough cash on hand to meet their financial obligations and avoid financial difficulties. This can help them maintain solvency and avoid financial crises.
- Improved Relationships with Lenders and Investors: By providing accurate and detailed cash flow forecasts, business owners can demonstrate their financial stability and improve relationships with lenders and investors. This can help them secure funding for future projects and expansions.
- Monitoring Performance: Regular cash flow forecasting is a performance metric. It helps to see how well the company is doing in terms of cash management and if there is any need to adjust the financial strategy.
- Early warning system: Regular forecasting allows to identify the potential issues in advance and take actions to prevent them from becoming a problem.
In conclusion, regular 13-week cash flow forecasts reviewed by business owners can provide a wealth of benefits. By anticipating future financial needs and identifying potential risks and opportunities, business owners can make better decisions, maintain solvency, and improve relationships with lenders and investors. Furthermore, regular forecasting is an early warning system to prevent potential issues. When cash flow forecasting best practice is adopted by business owners it helps to ensure the long-term success and viability of their business.
Are you looking to find out more about how to implement this practice easily in your business, schedule your complimentary Virtual Finance Executive appointment here.