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Why do a cash flow forecast?

A cash flow forecast is an estimate of the financial future of your business, based on key assumptions. Essentially, it’s very simple because it’s just money in and money out.

Sometimes a cash flow forecast is needed, for example if you approach the bank for an overdraft or loan. However, when a business is established it isn’t usually necessary to do one so most businesses don’t; they just do their bookkeeping, VAT returns and accounts.

That’s a shame because there is a big opportunity.

The thing about bookkeeping, VAT returns and accounts is that they are the past. You can’t change the past and it’s usually not very inspiring – even if you’ve done well the result of doing the work is a tax bill!

However, a cash flow forecast is an opportunity to think about the future. This is where you can take a step back from the day-to-day work to be creative and make decisions. And, decisions that help you create a better business.

This is why I recommended reforecasting every quarter. This means you have four opportunities a year to really think and make important decisions.

Completing a cash flow forecast gets you to think about your business and consider things like the:

  • Target markets
  • Marketing channels
  • Promotional activities
  • Pricing strategy

And, thinking about these things will help you find your key drivers; these are things that ultimately drive the business results. When you have these you can focus on them and start to improve your results.

A leading cash flow forecasting system is Futrli. This connects to Xero and enables you to compare your forecast to your actual results in real time.

If you’d like to explore how cash flow forecasting can help you get in touch.

Image from Flickr by Philip Taylor.

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  • We are highly qualified and experienced

  • Specialist in tax planning

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