What is a cash flow forecast and why is it important?

These two questions are the most popular we are asked. The answers are many fold so we have put them all in one post for you.

We hope they are useful but if you have any other questions, drop them in the chat box in the bottom right of your screen.

Cash is the foundation of any business

We've all heard the phrase "Cash is King" but you would be foolish to think this is no longer the case with so much electronic payment behaviour becoming prevalent. Despite being able to donate to charity in the street via electronic payment these days cash is still king in business - but not in the ways you might think!

When we talk about cash in terms of cash flow, we are referring to the money readily available to you within your business. The money you can use to pay wages, suppliers, business rates and the money that is generated directly into the business from sales or grants and loans. For other variables that affect cash flow, see How to Calculate Cash Flow.

It is this cash that is the lifeblood of your business because, without it, your business simply cannot operate effectively.

This is why the management of your businesses cash flow is so crucial to the success of your business and should be afforded the appropriate level of focus and priority.

This is why we have created a cloud-based cash flow forecasting tool which helps you do just this!

Foresee problems before they occur

Our Cash flow forecasting tool gives you a futuristic view of your businesses cash flow based on the figures you have entered meaning you can see any potential problems before they actually occur.

For example, based on the incoming and outgoing cash you have in your business, there could be a shortfall in three months' time. This would be immediately visible from our easy-to-understand graphical dashboard showing you when the shortfall will occur and what will cause it.

You can easily drill down into the data to find out how big the problem is and what you could do to fix it.

Your cash flow forecast will also show you how long the problem will last for and what could happen to your cash flow if you do not take immediate action.

Cash flow forecasting is cheaper than failing

The biggest reason we decided to create our cash flow forecast tool is to increase the number of start-ups who succeed. It is widely reported that start-ups are more likely to fail in the first 12 months so getting new businesses through this period successfully is crucial.

Being able to see into the future of your cash flow means you are less likely to fail because you can see if and where the problems with your cash flow might occur. This will give you the opportunity to change things to avoid cash flow disaster.

It is far cheaper to use a cash flow forecasting tool like ours on a regular basis than to hit a cash flow problem and then have to remedy it, or worse, loose your business altogether.

Avoid the problems before they occur with regular cash flow forecasting.

Make better-informed decisions

Using a cash flow forecast on a regular basis gives you more than just warning signs of problems to come. You will also be able to see where there are areas for cash flow improvement and how certain changes to any of the variables that affect cash flow could impact on your business.

For example, if you could see that there was a surplus of cash building up in your business, you could consider implementing a grow strategy. However, this obviously comes with a certain level of risk so wouldn't it be great if you could see how these decisions could affect your business, and its cash flow, before you actually made any firm decisions?

A cash flow forecast, which is well maintained and referred to regularly, will ensure you are fully informed about your businesses cash flow, enabling you to make strategic business and leadership decisions.