Have you ever heard the saying, “Turnover is vanity, profit is sanity, and cash is king”? Cash flow is the lifeblood of every business, which is why effective cash flow forecasting is essential to success.
Even the most profitable businesses can fail if they suffer a temporary lack of cash. To mitigate the risk, companies should implement good cash flow forecasting to understand their financial position, predict cash shortages, and ensure they can pay their suppliers and service their debts.
At Spotlight Accounting, we offer professional cash flow forecasting services to ensure your business remains on the pathway to financial success.
What is cash flow forecasting?
Simply put, cash flow forecasting involves tracking the the money that goes in and out of a business. The historical data can then be used to prepare cash flow projections to anticipate the inflow and outflow of cash over a specified period, typically monthly or quarterly. A good cash flow forecast should look at least 90 days into the future.
By accurately predicting cash flows, small business owners can make informed decisions about managing expenses, securing financing, and ensuring there’s enough cash on hand to cover operational needs. It’s essential to ensure financial stability and facilitate business growth.
Cash flow analysis and forecasting is an ongoing process and needs to be reviewed and adjusted regularly to avoid any unforeseen movements.
Why is cash flow forecasting important?
Good cash flow management is essential for all businesses, large and small.
The benefits include:
Preventing a cash crisis, i.e. negative cash flow – Avoiding the point where your business runs out of money is crucial. While it may be possible to obtain finance to cover shortfalls, it’s often too late and can put your business under further financial strain.
Alleviating the burden on business owners – Managing finances is often one of the biggest challenges for business owners. Having your cash flow under control and having a clear understanding of your cash position can save a lot of stress and strain.
Planning for the future – If you receive a late payment from a customer, reviewing the current forecast can help you plan for the impact on your business bank account. A cash flow forecast also highlights how much free cash is in your business so you can strategically plan how best to use it.
Operational insights – Understanding where your cash is going to and coming from provides you with a deeper understanding of your business operations and highlights areas of improvement and savings.
What happens if you don’t track cash flow?
As a business owner operating in uncertain times, cash forecasting is more crucial than ever.
For example, if you only look at your bank balance at face value, you may think there are sufficient funds to pay for new equipment. However, if a large VAT bill is just around the corner, the business could be left with a serious cash shortfall.
Our cash flow forecasting service
Our cash flow forecasting service involves implementing procedures to track and analyse the cash coming in and going out of your business. We then use historical financial data to estimate the dates on which revenue comes in and suppliers are paid. We present this as a detailed cash flow forecast for the next 12 months, broken down into 90-day periods.
With an understanding of future cash flows, we can identify potential cash flow problems and help you take preventative measures to avoid financial upheaval.
Cash flow forecasting is an ongoing process, so our services include regular reviews and adjustments to represent increased sales, asset purchases, new finance agreements or new supplier terms.
Manage your business cash flow with Spotlight Accounting
Take action today and say goodbye to unexpected cash crises and hello to strategic cash flow forecasting. The team at Spotlight Accounting are here to help you take control of your cash flow once and for all.
If you would like to know more about the services we offer, then contact Spotlight Accounting, and we’ll be in touch soon.
Contact Us
Client Reviews
Frequently Asked Questions
Can an accountant help me improve the cash flow of my business?
An accountant can help you improve cash flow by preparing a cash flow forecast. This will help you understand the cash inflow from customers and outflows to suppliers, tax payments and other stakeholders. These forecasts give a clear picture of any potential cash flow issues so solutions can be put into place well in advance.
What accounting software can be used for cash flow forecasting?
There are numerous pieces of software on the market that can aid cash flow management, from a simple spreadsheet to the latest AI-powered software. At Spotlight Accounting, we recommend Xero analytics, a powerful tool that uses past data to predict future activity and prepare reliable cash flow forecasts.
Can I use a cash flow forecast as a budgeting tool?
A cash flow forecast is one of three great budgeting tools. As well as understanding your cash position, you also need to ensure that the company is profitable. That's why Spotlight Accounting's budgeting service includes a forecasted profit and loss account, balance sheet and cash flow.
Who is responsible for cash flow forecasting?
The ultimate responsibility for cash flow forecasting lies with the company directors, as it is part of their statutory duty to manage the company's finances on behalf of the shareholders. They can delegate this responsibility to a finance team or an external accountant like Spotlight, but ultimately, they need to ensure that their own business always has enough cash to meet future commitments.
How accurate are cash flow forecasts?
A cash flow forecast is not an exact science. They use historical data of your income and outgoings to produce a prediction of future cash flows.
The financial future of a business is never certain. The future financial climate and the behaviour of some external stakeholders are beyond an accountant's control and can affect the expected results. That's why it's crucial to review the cash flow forecast regularly. The more frequently the forecast is reviewed, the more precise it becomes.
Cloud-based solutions such as Xero analytics, which is powered by AI, use data collection and analysis to identify, project and prepare future predictions. This can significantly enhance cash flow management and improve the accuracy of cash flow forecasts.
Ready to work with us?
If you like the sound of what we do and want to work with us, let’s talk.
If you’re worried about switching from your existing accountant, don’t.
It’s easier that you think – 27% businesses work with an accountant that they want to switch from. The process is all dealt with by us and we make it as painless as possible.
