Cashflow forecasting is a powerful tool that provides businesses with valuable insights into their financial health. By accurately predicting your potential cashflow, you can make informed decisions, plan for the future and deal with any potential risks before they become real problems.
In this blog post, we’ll explore the significant benefits of cashflow forecasting, and how it can contribute to better financial planning, risk management and decision-making, ultimately leading to enhanced business growth and stability.
What is cashflow forecasting?
Cashflow forecasting involves predicting the future cash inflows and outflows over a specific period, typically monthly, quarterly, or annually. It provides a projection of your business’s cash position, letting you anticipate how much money will be available to meet your financial obligations and fund your operations.
Cashflow forecasting works by using historical data to analyse trends about your earnings and spending that can predict future cashflow. By doing that, you can anticipate potential cash shortages and surpluses, and take proactive measures to address them.
The best way to make a forecast is to actually make multiple, each one based on a different set of assumptions – a slower summer due to bad weather, for example. You should also use a method that is appropriate for your business size, complexity and industry, and regularly review and update them as new information becomes available.
Advantages of cashflow forecasting
Better financial planning
One of the most significant advantages of cashflow forecasting is its ability to help businesses plan their finances more effectively. We know it sounds quite obvious, but by doing this, you can anticipate potential cash shortages or surpluses, and plan accordingly.
This will allow you to allocate resources more efficiently, prioritise spending, and avoid unnecessary expenses. With a clearer picture of your financial position, you can make strategic decisions that really support your business goals and ensure long-term financial stability.
Improved risk management
Cashflow forecasting can also help businesses identify potential financial risks and plan for them to stop them from becoming problems before it’s too late. This might include building cash reserves, securing additional financing, or adjusting your business operations.
In other words, by using cashflow forecasting to look ahead, you can safeguard your business against disruption and maintain financial stability, even in challenging economic conditions.
Enhanced decision-making
Cashflow forecasting also gives businesses valuable insights that can help them make smarter decisions across all of their operations. Whether you want to expand your business, invest in new equipment, hire additional staff or anything else, having a clear understanding of your cashflow can help you make more informed decisions.
It can also help you with long-form decision-making, as you can plan ahead for different potential scenarios. That way, you’ll always know what to do, whatever the future may have in store for you.
Facilitating access to financing
Cashflow forecasting can be invaluable when it comes to seeking financing for your business. Lenders and investors often like to rely on cashflow forecasts, as they’re great tools for demonstrating your business’s ability to generate cash to repay loans and create returns.
So, creating some forecasts can increase your chances of securing financing with favourable terms, enabling you to fund growth initiatives.
Get help with your cashflow forecasting
At Artisan, we’re experienced accountants dedicated to assisting businesses like yours with accurate cashflow forecasts. We’ll help you gain a clearer picture of your financial position and plan for the future with confidence.
Contact us today to get someone who can really help with your business planning.
