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Why your business needs a cashflow forecast

 

If you own a business, you’ve probably heard of a cashflow forecast. But have you actually done one? A cashflow forecast is an essential tool to help you understand the financial ins and outs of your business and help you plan for the future. It takes into account your sales, expenses, and budgets and creates a report that can predict how you’ll fare over the next few years. If you haven’t conducted one yet, here are some reasons why you need to get one sorted ASAP.

To help you prepare for future risk

This is a pretty obvious reason, but if you want to know how your business will fare based on how you’re currently tracking, a cashflow forecast will give you great insight. Not only can you get an overview of your situation, but with a forecast, you can test out various scenarios and put a plan in place for any potential risks that might arise.

To identify patterns

By looking at your business as it stands now, a cashflow forecast can help you to identify patterns and predict when you might need to scale up or down. For example, if you have a business where your product demand is seasonal, you’ll need to identify where your slower periods are and factor this into your planning and growth.

To reach your business goals

You might have certain targets you’re hoping to hit in your business in terms of profit or growth, but to make sure you can reach them, you need to know your current trajectory. By looking at a cashflow forecast, you can get an idea of when you are likely to reach your goals, and if it’s not within your specified timeframe, it gives you a chance to readjust or put more resources into making it happen sooner.

To demonstrate good practices 

If you’re looking to secure a loan for anything in your business, a bank or lender will be much more likely to consider you if they can see that you can plan ahead. A cashflow forecast enables you to provide a detailed financial projection for your business, and shows that you are aware of any potential issues and have a plan in place to mitigate them.

Cashflow forecasts typically include:

  • Expected sales numbers
  • Expected gross margins
  • Expected overhead costs
  • Expected inventory costs
  • The average time it takes for your sales to be paid
  • The average time it takes for your purchases to be paid
  • The expected dates of tax payments – all types of tax payable, including GST, etc.

If that seems like a lot, and you’d like some help putting together a cashflow forecast for your business, just get in touch with our expert accounting team today – we can help get you on the path to success!

 

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