Why Cash Flow Forecasting Is Critical to Success.

A lack of cash flow is one of the biggest reasons why small businesses fail, they simply run out of cash and need to be shut down.

Being able to forecast and foresee when cash might be low can help prepare and prevent these situations.

One of the surefire ways for you to reach your goals through cash flow forecasting.

This is a tool that gives you a pragmatic projection of where your business is heading. This then puts you in a perfect position to take action in whichever situation demands it.

Of course, it has some additional benefits, too.

It Builds Confidence

The cash flow forecast targets three particular entities:

• Owners

• Banks

• Investors

It offers a fair amount of visibility and control over a business’ finances. A good projection, albeit still rough, can build confidence in all of the entities above.

Owners can see if they’re on track. If not, they’ll know when and how to take action.

For instance, investors can see the current standing of a company. A cash flow forecast may persuade them to put more funds in and help jumpstart new projects.

Banks, meanwhile, may use a cash flow forecast to assess the liquidity of a business. The health of this forecast can be the difference between getting and not getting a loan.

A cash flow forecast may even help you renegotiate your rates, thus improving your cash flow and financial stability.

Predict a Looming Cash Flow Crisis and Mitigates any Financial Squeeze

We recommend updating your cash flow on a weekly basis, ideally projecting the cash flowing in and out of their business bank account for at least 12 weeks.

You need to be updating this EVERY week so that you know if you have a cash flow crisis coming, what can you do NOW rather than getting to that point and not having sufficient cash to pay your staff or suppliers.

If you have the insight you can take action to get through the rough cash flow patches quickly.

Helps You Make Better Decisions

Both good and bad decisions come from the top. As a leader, you want to make as many good decisions as you can regarding your business, yourself, and your team.

Before you take any action, it’s critical to know how money moves in your company.

Cash Flow forecasting helps you gain much-needed perspective. At the same time, it forces you to think strategically about your next move.

The Question is… Who Should Handle Your Cash Flow Forecasting?

Cash Flow Management is your responsibility as a business owner.

If you have an accountant, they should be able to help manage your cash flow and build a forecasting model.

As your business grows, you’ll want to assign the task of cash flow forecasting to your finance team.

Know Your Finances

If you see warning signs of falling cash flow, forecasting will help. It will let you know what’s wrong and where to take action to prevent the same thing from happening again.