One of the major reasons for business failures is the cash flow related issues. It has been an old saying that cash is king; therefore, it does make a difference in ensuring your businessí success as well as the failure. Generally, businesses focus more on their profitability and the turnover but they donít focus on giving the proper amount of attention to their firmís cash related needs.
Cash flow forecasting is something that most of the business owners are not aware and this is where the problem lies; however, because of this it becomes their duty to be aware of it. This process is actually an estimated amount of the money that will come through cash inflows and leave your firm through the cash outflows. In simple terms, itís a measure of profits and losses your business is supposed to see over a particular period. Usually the cash flow forecasting is generally based on the monthly reports of your budget. If you take the cash inflow from sales as well as other receipts and find that it is more than the cash paid out at the end of the month, then that means your business has a positive net cash flow or your can say that it has made profit.
Therefore, when you go for the cash flow forecasting, then your first responsibility will be finding out that, which are the periods when your business needs more funding. There might be a need for the part of machinery or some other equipment to be replaced with in six-seven months times; however, according to your budget you might not have enough resources to ensure that replacement. Hence, you can easily discover these issues and approach a moneylender well ahead in time for the new equipment you need to buy for your company. Therefore, in this case it will be easier seal a deal with the help of forecasting.
If we try explaining the above point in a simpler way, the cash flow forecasting helps you in making a blue print of your plan before you approach a bank or a moneylender. This will help in removing all doubts from their mind and they will easily make out how much money you require and will plan accordingly to give you the best deal. Besides, you might be looking to renew your business account overdraft facility. The in that case as well cash flow forecast will become an efficient option for your company.
Cash flow forecasting will also help your discover the issues related to the expenses and other receipts your business might be paying out. Therefore, in the end, youíll be able to remove some of these extra expenses, and this will eventually stabilize your position further.
Cash flow forecasts also need comparing with the end of the month accounting figures of your firm. This will help you in finding out if the figures are different and working out why theyíre different. Hence, then you can analyze these differences to make you cash predictions even more accurate than you have right now.
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Prasanth is an author for Specialised Business Solutions site, Best accounting firm based in Brisbane. He has been writing articles on Cashflow Forecasting for accounting firm.
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