• Feb 08, 2021
  • News and Updates

Cash Flow Forecast – Why is it Important and How to Create One for your Business

To be able to assure that your business will do well in the coming months and years, forecasting and estimating your cash flow – cash coming in and cash coming out of your business, is essential.

Once you forecast your cash flow, you will be able to understand four things:

  1. How long your business will survive depending on your present sales levels
  2. The amount of money you will have at the end of a specific time
  3. What your revenue generating sources are in your business
  4. What expenses should you expect and how to control or adjust them

With these, you will also be able to plan possible scenarios that may arise and solve them before they even come about.

To start forecasting your cash flow, here’s what you need to do:

1. Distinguish where your cash is coming from

  • You need to understand where your cash/revenue mostly comes from and the factors that affect it. Do you have two or more markets? Does one market produce more revenue that the others? Do you have products/services that are high value but low volume or low value but high value? There’s a need for these factors to be distinguished and understood in order to plan what you can do. You also need to include other revenue generating channels like grants, tax refunds investments, and the like.

2. Distinguish your expenses

  • Like understanding where your revenue is coming from, it is also vital to look into your expenses. Where is your cash going to? How much are you spending on rent, wages, materials, bank loan and fees, electricity, and all other expenses. Are there ways to lower the costs? Do you have other options? There is a need for these to be listed and monitored well to control cash that is going out. You can make adjustments when you have a forecast of your expenses.

The importance of having a cash flow forecast is that you will be able to see how long your business can thrive and you’ll be able to plan and think of solutions ahead of time where it appears that cash will be tight. It enables you to plan ahead!

If you need help with your cash flow specially during challenging times like this, we can help you. If you want to talk about it, get in touch with us today. You can reach us at +44 (0) 1892 807 001 or email us at accounts@nayloraccountancy.com.