The Benefits of Cash Flow Forecasting

Cash is so important in a business, and we need to understand where our cash is coming from and being used to give us the foundation to begin making necessary changes to ensure that our businesses will be successful.

Once we have an initial cash flow we can begin to look at the monthly figures to really delve into where there could be improvements to be made, and the impact that making various changes would have on our business cash flow and profit.

Making any changes in a business can be daunting however, what can make these changes less daunting is forecasting the likely results before making the actual changes and having a strategy in place for a smooth transition.

By using forecasting we can make changes and prepare various forecasts to see the likely future positions of making any changes.

There are many benefits of forecasting cash flow, some of the main benefits are:

  1. It can help you to understand the options that your business has, and which one is the right one for you whether you’re looking to grow, or just maintain your current position.
  2. It enables you to see the likely results of various scenarios to give you vital information in order to make important decisions.
  3. It reduces the risks as forecasting enables you to see the likely impact on your cash flow of making decisions.
  4. It can help to identify any potential problems with your cash flow that you may not have previously been aware of.

For example, say we are looking to close a branch of our business, and increase the prices in the remaining branches. Cash flow forecasting will enable us to look at the figures for say the next 12 months, to see how the loss of income and expenditure from that particular branch would likely affect the overall position of the business.

We can then look at how the increase in prices would affect the turnover of the business going forwards. In combination with looking at the increase, we can use alternative sales prices to see what the likely impact of each would be.

It may be that from the forecasting, we decide that it is better to not close the branch, but at least we know that before the decision has been made, and possibly regretted.

Cash flow forecasting gives us the necessary information to have comfort in the decisions that we make and gives business owners the control to drive their business forwards successfully.

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