Start forecasting your cash flow to reduce risk and put your business on a path of exponential growth.
Do you ever wonder about the optimal time to hire a team member, rent an office space, or invest in a new piece of equipment? You want to make sure you have enough money coming in to support the investment and not too much money flowing out.
Most business owners wrestle with cash flow questions like this, especially when they’re in growth mode. What’s the answer? Cash flow forecasting. Understanding where you stand financially—not just in the present, but in the future as well—will help you confidently make sound business decisions.
What Is Cash Flow Forecasting?
A cash flow forecast shines a light on how much cash your business is projected to have over a specific period of time, using current and historical income/expenses data.
This cash flow data can help you:
- Identify the right time to make capital investments
- Understand the impact of regular expenses on your cash flow
- Consider how to optimize your invoicing and accounts receivable processes
- Assess when your business is busiest and slowest
You can do forecasts for the short-term (30 days), medium-term (2 months–1 year), or long-term (1–5 years). It’s important to note that a longer forecasting period results in a less accurate forecast. (Unless you have access to a crystal ball.)
CASH FLOW FORECAST VS. CASH FLOW STATEMENT
The difference between your statement and forecast is simple: A cash flow statement (or report) shows actual data on past cash flows in and out of your business. A cash flow forecast (or projection) is an estimate based on the information you’ve gathered in your statements/reports.
That means you’ll need accurate cash flow reporting in place first to do accurate cash flow forecasting.
Why Do I Need to Do a Cash Flow Forecast?
Managing a business can sometimes feel like a day-by-day proposition, but most businesses can’t achieve strong, sustainable growth unless they establish working capital. And you can’t make informed decisions or plan ahead to meet business objectives without a strong grasp of your financials.
Let’s say you want to bring on an administrative assistant to help lighten your load so you can focus more on client work. You might look at how much money you have in the bank right now and think you could pay an employee’s salary this month, no problem.
But can you predict your cash levels next month? Or in 3 or 6 months? The question becomes, will your company have the cash to support the ongoing expense of hiring an employee? This is where a cash flow forecast comes in.
Understanding the big picture of your cash flow, including what comes in (and when) and what goes out (and when) will allow you to discern what’s feasible for your business now, and in the future. – Read more
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