Cash Flow Forecasting

Cash is the lifeblood of every business. Ever heard the saying “turnover is vanity, profit is sanity, and cash is king”? Even the most profitable businesses fail due to cash shortages.

Cash flow forecasting can help businesses understand their cash position, including any period of cash shortages and ensure that it has the ability to pay their suppliers and service their debts.

At Spotlight Accounting, we offer cash flow forecasting services to ensure your business remains on the pathway to success.

What is cash flow forecasting?

Cash flow forecasting looks at all the money that is due to come in and out of the business and then uses this data to prepare cash flow projections. A cash flow forecast should look at least 90 days into the future.

The cash flow should be used in real-time as a planning tool to ensure that there will be enough money in the business. Cashflow projections can also be used to model “what if” scenarios so that business owners can understand what is happening to the cash balance in the business.

Cash flow forecasting is an ongoing process, so the cash flow needs to be reviewed regularly and adjusted for movements that did not happen. This is so that business owners can understand the free cash.

Why are cash flow forecasts important?

Cash flow forecasts are essential management tools, and the benefits of good cash flow management for businesses include the following:

  1. Prevents getting into a cash crisis – the point at which your business runs out of money is often too late to get finance to cover any shortfall.
  2. Helps business owners ensure they are on track – managing finances is often one of the biggest challenges for business owners, so having cash flow under control and understanding the business cash position can save a lot of stress and strain.
  3. Planning for the future – if a business receives late payment from a customer, reviewing the current forecast can give companies the knowledge of the impact that this will have on the bank account. A forecast will also highlight how much free cash a business may have so they can then plan what to do with these funds.
  4. Looking at future cash coming in and out of the bank – understanding where your cash is going to and coming from also gives business owners a deeper understanding of your finances.

We are currently in uncertain times, so now more than ever, it is crucial to understand the cash coming in and out of your bank and the cash gap that needs to be financed, if any.

If you only look at cash on the face of it, you may think there is enough money in the bank to pay for a new Van, but if there is a large VAT bill due and not taken into consideration, the business could be left with a shortfall.

Manage your cash flow forecasts with Spotlight Accounting

At Spotlight Accounting, our cashflow services involve working with clients to understand the cash coming in and out of the business. We also look at historical financial data to understand the date revenue comes in and suppliers are paid. From this, we prepare a cash flow forecast for our clients.

As well as preparing a cash flow forecast, we can work with clients to help manage and control their cash position. Cash flow forecasting is an ongoing process, so our services involve reviewing the forecast for changes such as increased sales, asset purchases, new finance agreements or new supplier terms.

If you would like to know more about the services we offer, then contact Spotlight Accounting today!

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Frequently Asked Questions

Many software providers can help with cash flow management, from a spreadsheet that can prepare the annual forecast to Xero analytics, which can help with short-term cash flow projections.

A cash flow forecast is one of three great budgeting tools, but as well as understanding your cash, you also need to ensure that the company is profitable, which is why Spotlights budgeting services include a forecasted profit and loss account, balance sheet and cash flow.

The ultimate responsibility for cashflow forecasting lies with the Directors, as it is part of their statutory duty to manage the company on behalf of the shareholders. They can delegate this responsibility to a finance team or an external accountant, but ultimately they need to ensure that their business has enough cash to meet future commitments.

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