A well-prepared cash flow forecast can be invaluable, even for profitable businesses. Here are a few issues that a cash flow forecast could help you with:
- Cash Shortages: The primary purpose of a cash flow forecast is to highlight potential cash shortages. If you know in advance when expenses might exceed income, you can plan how to cover the cash shortages.
- Delayed Payments: The impact of payment delays can be modelled using your cash forecast and can be used to give you best- and worst-case scenarios.
- Loan Repayments / Reliance on Credit: Knowing when repayments are due allows you to plan your outgoings accordingly, and you can also see when your credit limits will be stretched.
- Planning for Investments: If you are planning significant capital expenditure, such as equipment purchases, you need to assess your ability to fund these purchases and make any loan repayments.
- Tax Liabilities: Paying your VAT, Corporation Tax and NI needs to be factored into your cash flow forecast to avoid cash flow problems, and potential penalties.
- Managing Working Capital: A thorough understanding of income and outgoings means that you can manage accounts receivable and payable more efficiently to help with your cash flow.
There are other benefits and purposes of a cash flow forecast. Part of our role as your accountant is to help with cashflow forecasting. We want your business to flourish. Talk to us and find out how we can help.
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