“Why would I need  cash flow forecasting? I don’t think I need to change my cash flow strategy  for my business. I think I am good with my cash flow.”

Well, think again…  Let’s learn how powerful cash flow forecasting is in your business.

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Business is usually filled with a lot of highs and lows and as a business owner you have to act smart. You need to arm yourself and also  identify a crisis before it hits. In terms of uncertainty and difficulty to get credit or cash from the banks then, you have to have the need for visibility and start looking into your funds. This article explains cash flow forecasting and how to use a cash flow tool  for your  business and for personal use.

What is cash flow forecasting?

Cashflow Forecast is a business tool which estimates how much money will be coming into the business (which is known as cash inflow) and what money will be going out of the business (which is knowns as cash outflows) over a set period of time.

Cash Flow = Cash Received – Cash Spent

Gone are those days of spending hours building forecasts that are soon out of date. A cashflow forecast helps you stay up to date with intelligent predictions from your latest financials. You can also understand your cash flow better by viewing it by day, week, or month.

Why should I use a cash flow forecasting tool?

  • Helps business to prevent insolvency
  • Helps businesses to obtain external finance
  • Helps businesses to predict if they can pay employees and suppliers
  • Helps businesses to set targets to compare their actual income and expenses against forecast over time
  • Helps the business to plan for the future by assisting key decisions such as:
    • Can we afford to employ more staff?
    • Can we afford to expand and open a new store?
    • Can we afford to pay a bonus?

Let’s get ourselves familiar first with some keywords to help you understand cash flow calculations

Cash Inflow

  • Money coming into the business

Cash Outflows

  • Money going out of the business

Net Cashflow

  • The Difference between the cash inflows and cash outflows

Positive Net Cashflow

  • Cash inflows are greater than cash outflows

Negative net cashflow

  • Cash inflows are lower than cash outflows

Cash Flow Calculations

Get to know  how to calculate cash flow.

Opening Balance

  • Previous months  closing balance

Total Inflows

  • All cash inflows added up

Total Outflows

  • All cash outflows added up

Net Cash Flow

  • Cash inflows – cash outflows

Closing Balance

  • Opening balance + net cash flow

Start creating  a list of transactions that covers a period of at least 3 months.  For illustration purposes,  check a sample cash flow forecast  spreadsheet below of a business. Let’s say  we are now in March trying to predict what are cash flow is going to look like in the next three months.

From the sample spreadsheet  above it will give you a big picture on how to create your own  cash flow forecast.

Measure, monitor and manage your cash flow

So, once you’ve created your own cash flow forecast, it’s time to check, measure, monitor and manage your cash flow from time to time to see where you stand. Keep track of the source and understanding how cash-flow problems occur is your best defense,  make sure to keep cash flowing because an ounce of prevention is worth a pound of cure when it comes to cash-flow problems, so get serious about minimizing your business’s fixed expenses,  always have plan B in place because despite the best of plans and most diligent cash management there may be times when your company needs extra cash, and manage your growth to be consistent as it is the best way to smooth out bumps in cash flow.

A good rule of thumb is to not project too far into the future. Too many variables can come into play with your business (e.g., dip in the economy) and affect your future cash flow.

A standard time period for cash flow projection is 12 months. Try to limit your cash flow projection time period to only a year in advance. That way, you can help prevent unforeseen expenses and errors impacting your projection.

If you don’t have time to track financial forecasts, consider delegating projection updates to a bookkeeper or if your cash flow tool is totally outdated and your forecasting is heavily reliant on Excel spreadsheets then you might want to think again. You can streamline the way you track cash flow with this specialised cash flow tool that answers all a corporate’s forecasting needs.

For an accurate cash flow projection, you need to receive and track customer payments. Moolahmore’s online accounting software lets you record your income and expenses to keep your finances in tip-top shape. What are you waiting for? Get started with your free trial today.

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