Cash flow forecasting is a key aspect of business survival, but many small business operators neglect to do it risking complete business failure.

Put simply, the simple act of cash flow forecasting is a key aspect of business survival. The time lapse between an invoice being issued and a client paying can be long, especially so for businesses with a real tight cash flow.

Now of course there is probably no better time for a small business than when a client pays up and your bank account’s looking healthier than it has in ages. The temptation to splurge the money can be high, but should you?

How can it help your business?

A cash flow forecast can make managing cash flow easier by helping to predict surpluses or shortages of cash. This enables you to make more informed decisions around tax, new equipment purchases or securing a small business loan.

You can also see the likely effect of a potential business change or decision. If you’re considering hiring a new employee, for example, you can add the additional salary and related costs to your forecast to see the overall impact of the hire before you decide whether or not to go ahead.

Cashflow Forecasts is essential for the accurate financial management of any business. It is important to utilise these effectively – forecasts and “what-if” planning scenarios help identify potential problems early so that you can prepare a contingency plan.

Effective use of cashflow forecast will allow you to make business decisions with confidence. Do you have sufficient overdraft limit to meet peak demands on your cash flow during the year? What is the impact of an adjustment to the selling price of one or more stock lines? What is the right amount of holding inventory? Can you afford that new asset?

A cash flow forecast goes hand-in-hand with tax planning by showing what money can be spared to reduce your income tax and what money will be available to pay the tax.

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