Back December 18, 2020

Why is cash flow forecasting important

As an entrepreneur or business manager you’re probably always in the position to make difficult financial decisions. The level of responsibility and stress is high especially if you do not have a clear overview of your future financial position.

Fortunately this is changing for the better thanks to all the financial analysis and forecasting platforms that have been developed recently. Especially cash flow management and planning tools have gained a lot of popularity because it helps people to better understand their tomorrow’s cash position and reduce the level of uncertainty.

This end of the year is the proper time for you to start planning your cash flow. With all the instability that’s characteristic for 2020, a clear overview of your future business finances might be exactly what you need to start fresh in 2021.

Why?

Cash flow forecasts give you more confidence in tomorrow. You know if you’ll have enough money to pay all the bills at the end of the month. You avoid cash flow crises and maintain a healthy relationship with your business partners and employees.

A cash flow plan helps you to understand the impact of your decisions over the company’s cash position. Want to hire someone new or buy more performant equipment? Check if you can afford this type of expenditure prior to making the decision of buying it. Use scenarios and compare your future financial picture with and without the additional costs.

A proper planification of your cash flow gives you the necessary support in tracking your invoices. Blocking precious cash in overdue invoices is something that you do not want because you need money to pay everyday bills. Therefore keep an eye on your inflows and outflows in order to have a healthy cash flow and to be more confident about your next moves.

Cash flow forecasts transpose to budgeting confidence. If you’ve already set up your sales target for the next period, consider using cash forecasts as well. This will make you better understand if and when you’ll achieve your goals. Use these insights in your next budget estimations in order to have a more accurate picture of your business.

Cash flow predictions give you time to prepare in advance for periods with lower revenues. If your company is highly influenced by seasonality, it’s really important to carefully plan your available cash in order to keep your business afloat until the next sales increase.

With a cash flow plan updated periodically you know ahead of time if there will be any cash surplus in your bank account. This is a good time to start thinking about your next investment: better equipment, advertising, market expansion.

If you want to start planning your cash flow without wasting time in Excel or Spreadsheets, give ThinkOut a try. Connect your bank account in order to refresh your data automatically. Set up your cash forecasts and keep track of what happened already and what is overdue. Start modelling your 2021 budget for the entire company and check month by month what’s the status of your business targets.

Continue to read about how to build financial forecasts for your business or about how to take care of your cash flow in difficult times.

Author: ThinkOut