07 October 2022

The Importance of Cash Forecasting during Turbulent Times

What You’ll Need To Set Up A Limited Company

No one knows what the future holds, but by forecasting your cash flow you’ll be ready for anything. Here’s how to get started.

With the response of the markets to the recent “mini budget” or growth plan, and the continuing UK inflation crisis, in terms of the economy, currently we’re living through unpredictable times. So, businesses are doing everything they can to have the most definitive view of their future finances. People are in business because they want their businesses to grow, but with so much noise around financial instability it can seem overwhelming and even impossible to consider such a thing.

Most business owners understand the importance of effective cash flow management, but few realise the importance of cash forecasting. Cash forecasting is a critical tool that can help you make better decisions about your business finances. In this blog post, we’ll discuss what cash forecasting is and why it’s important for business, especially during turbulent times. We’ll also provide tips on how to create a cash forecast for your own business. So, if you’re looking for ways to improve your financial stability, read on!

What is a cash flow forecast?

Cash forecasting is the process of estimating the future inflow and outflow of cash so that you can make informed decisions about how to best use the available funds. You may wonder, why is cash important to a business? Simply put, cash is the lifeblood of a business, and a business needs to generate enough cash so that it can meet its expenses and have enough left over to repay investors and grow the business.

A cashflow forecast is done using historical data, such as sales records and invoices, and by making educated guesses based on market trends and other factors. The goal is to have a clear picture of what your business’s cash situation will be like in the near future so that you can make sound financial decisions.

The term ‘three-way forecasting’ refers to the ability to forecast profit, balance sheet and cashflow altogether, as these are all linked. There are balance sheet changes that could have significant effects on a company’s cashflow, which do not appear in a company’s profit and loss. For example, income from finance, capital purchases and capital repayments all will affect a company’s balance sheet. Three-way forecasting allows business owners to get a precise view of all of these factors.

Why are cash flow forecasts important?

The best performing businesses we’ve worked with always plan their finances by forecasting how much revenue will come through per month well into future years. This means that if something does happen unexpectedly, then these businesses know exactly what kind of cushioning system exists within the company.

Knowing what to expect in terms of cash flow can help you avoid costly mistakes, such as overspending on stock or not having enough money on hand to cover payroll.  Here are some other examples of why cashflow forecasting is important.

Managing growth

When you’re growing rapidly, it can be hard to keep up with demand. But there are ways! By plotting out the expected cash movements of each element in your business and setting aside funds for when you need them most – like during peak seasons or for tax bills you’ll not only have more time for other important tasks but also avoid running low on money altogether.

Managing surplus cash

By using financial forecasting software such as Clearview Hub, you can predict if your business will have a surplus of cash. Companies can then put this money to work – whether that’s investing in new machinery or purchasing additional stock.

What’s more, scenario planning can assist enterprises in forecasting the impact of specific investments or decisions as they look to reinvest any excess money.

Anticipate future cash shortages

When you know how much money is coming in and going out every month it can help prepare for the unexpected. For instance, if a customer doesn’t pay their bill, then knowing cash flow ahead of time will give business owners enough warning so they have time to take measures before facing large negative cash flow situations

There are many benefits that come with creating a cash flow forecast for your business. In a nutshell, cashflow projections will help you make more informed decisions about how to best use your available capital—all good if you’re ambitious to grow regardless of the financial climate.

How to create a cash flow forecast.

Creating a cash flow forecast in a spreadsheet is time-consuming and difficult – so help is at hand!

With Clearview Hub’s advanced, cloud-based financial forecasting software you can make cash planning a breeze. Save time and money by using online tools that are invaluable for accurate planning! Get instant access to your forecasted P&L or balance sheet with just one click of the mouse – no need go back into documents individually each month because we’ve got it all right here  using Clearview Hub

Clearview is a revolutionary tool for entrepreneurs and businesses. It takes seconds to whip up an accurate forecast! Clearview not only guides users through their forecasting process but also provides them all the necessary information they need – from Profit & Loss statements to balance sheets so that there’s no guesswork involved in starting or growing any type of business.

Conclusion:

In conclusion, cash flow analysis and cash flow forecasting are essential for any business owner who wants to their business to grow and thrive. By taking the time to create a forecast on a regular basis—preferably monthly or quarterly—you can avoid costly surprises and make more informed decisions about how to best use your available capital.

If you have any questions around starting a business, growing your business or cash flow forecasting, please visit our business resources area or get in touch with our partner Porterdale Business Consultancy.