Cash Flow Forecast Services

From expert accountants based in London

The majority of businesses fail due to lack of cash or lack of cash flow planning and cash flow forecasting. In layman terms, when you run out of money, your out of business.

It doesn’t matter if your P&L is showing positive; if your cash flow is not in a healthy state, you’re going to lose! There is a reason why there is the saying ‘Cash is king’!

Most businesses mismanage their cash when starting; as money flows outwards rapidly, then it comes in. This is normally because you are extremely busy with the orders coming in, but you lose sight of who’s paying and if they are paying on time. During these times, the usual course of action is to use the overdraft facilities or get further funding to keep afloat.

This may further cause issues as you will end up being stuck in a loop. The money that was issued from the lenders you have paid back with your receivables, and now you are back at square one with no cash. Businesses usually struggle with this type of scenario, especially in the first 6 to 12 months of trading. All your suppliers won’t give you any credit, and all of your customers would want everything on credit. This leads you extremely crunched, even though your financial statements may be showing a healthy profit. What good is a profit showing on paper when you don’t have any physical cash to back it up?

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FAQ about cash flow forecasts

Put simply; cash flow is the movement of money. All incoming and outgoing transactions, when added together, gives you a picture of exactly how much cash you have available at any given time.

At the start of the business, it may seem that cash seems to be just flowing one way, but we can assure you it is a two-way system!

Cash comes in from your customers to who you have sold your products or services. Some customers won’t pay at the time of the purchase; those purchases will be listed down as receivables.

Cash goes out of the business when you make payments to suppliers, lenders, landlords, etc. Some expenses you will receive invoices of a lot earlier than they are due, which will be listed down as your payables.

As explained earlier, it can be quite deceiving what your financial statements show to what actual cash you have. By having a cash flow forecast, you can better manage your business and make better decisions to avoid ever running out of cash.

This gives you peace of mind in knowing your business is operating well operationally and financially.

A cash flow forecast provides the best picture of the amount of cash coming in and leaving your business bank account over the year. Therefore, it becomes an essential part of business planning. Without cash, your business wouldn’t stand a chance of survival. It is also essential if you are looking to grow your business and are looking for further funding. It is the go-to place for all lenders, as they hold this forecast in high regard.

As this is a forecast, it would be ideal to have it compared to your actual figures every quarter to make sure you are on track. You shouldn’t be alarmed if the variance between actual and the forecast is off, as the forecast only provides you with a ballpark figure and is the best estimate to give your business structure and a goal.

They are totally different; however, the foundations are the same.

The cash flow statement shows a business’s inflows and outflows of cash over a set period and are based on actual figures. Therefore, they are historical. In contrast, a cash flow forecast is based on predictions and are not factual. They are generally used internally for management.

Cash flow statements can be produced internally by businesses to see their cashflow status, although they are generally produced during year-end as part of statutory accounts. This information is made available to the public via the company’s house for customers, suppliers, and investors, who can analyse how well a business is performing.

  • Tying up all your cash in inventory will restrict you in other areas of the business. Keep tight control over your inventory by investing in some good EPOS systems.
  • Make sure you are on top of your receivables. As soon as an invoice is about to go beyond its due date, chase up your customers. There is no shame in doing it.
  • Do not feel bad about ending unprofitable relations. If customers are not paying on time, make a decision to end the relationship.
  • Use real-time data or the most up to date data to update the forecast, as this will help solve issues quickly.
  • If you identify certain stock/services not selling, consider having them at a discount. This will help boost your cash flow short term.
  • The items that are doing well, you might want to allocate a bit more cash to your marketing budget to help boost sales that bit more.

Our most profitable clients all plan ahead. Book your free consultation now if you would like projections to help grow your business.

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