Budget Updates, hot off the PRESS!Why is it important to have a Cash Flow Forecast?
The short answer is because you need to be in CONTROL of the CASH to be in proper control of your Business, especially in times of Recession like now.
The Purpose of a Cash Flow Forecast
A Cash Flow Forecast allows you to: -
- Estimate your initial cash requirement to start the business
- Determine how much external funding (if any) will be required
- Show how and when you will be able to repay any external funding
- Determine how much money you can withdraw from the business for personal use
- Point up any potential cash flow problems in the future as the business grows
- Monitor the effect of Debtors on your Business
If your business is working in a marketplace where waiting 30, 60 or even 90 days to get paid is the 'industry norm' monitoring your Cash Flow Forecast becomes increasingly important as does keeping track of the customers who are annoyingly slow to send their payment to you.
There are 2 very useful Business Information Factsheets that you should acquire and download to act as guides and these are as follows: -
The Importance of Cash Flow Management
Business owners who are too 'bogged down' in day-to-day stuff in a business are almost certainly neglecting their Cash Position and are therefore not in full control of their business.
Taking the time to Review your Cash Flow Forecast on a regular basis, preferably at the end of each month, will repay the investment in time over and over again. Simply change the projected figures for the month just completed for actual ones and see what effect this has on the months ahead. If it is clear there are cash flow issues developing then you can examine and address these before it is too late to take effective action.
Pointers to remember: -
- Use the Cash Flow Forecast to conduct 'what-if' scenarios to see what might happen to your business finances if sales are 10-15% higher or lower than your Forecast shows.
- Ensure, if possible, that you have a contingency reserve in place in case of sudden emergencies etc.
- Don't forget that the "Closing balance" on your monthly Cash Flow Forecast relates only to the final day of the month and that at any point in the month the true situation could be somewhat worse if sales payments etc are delayed for any reason.
- The unpalatable truth is that many new businesses, even large ones, underestimate the length of time it takes to get established and start life 'undercapitalised' which put simply means the business does not have enough CASH to sustain itself till the income starts to arrive in sufficient quantity to start contributing to the payment of bills etc.
Very often getting your Cash Flow Forecast up-to-date will point out issues that may need to be dealt with by re-financing your Business to put it on a better ‘footing’. Take a look at the related pages on Financing Your Business and Your Credit File whilst visiting our website.
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