why do I need a cash flow forecast?
Cash flow is the lifeblood of any business and sadly most businesses fail because of a lack of it, rather than a lack of profit.
For that reason, you need to be able to predict the peaks and troughs in your cash flow as accurately as possible, and ensure that you have an adequate facility in place should you need one.
Whether you’re starting up in business, or running an existing one, a cash flow forecast will identify any shortfall in advance so that you can arrange finance in good time. This could be due to a number of reasons, such as seasonality, a large capital expenditure requirement or general expansion. Once in place, you are in a position to protect yourself when times are hard, rather than going to potential lenders cap in hand.
Regular cash flow forecasts are generally evidence that a business is being well-run.
what’s included in a cash flow forecast?
Typically a cash flow forecast will be prepared annually, broke down by month, but it can be done more frequently if needed.
It translates the profit and loss of a business and its balance sheet into actual cash movements, so takes into account:
- VAT – input and output tax, and actual VAT payments
- pro-forma payments and customer and supplier credit terms
- investment in equipment and stock levels needed
- hire purchase and loan account movements.
how can we help you?
So if you are experiencing problems with your cash flow or you need help producing cash flow forecasts, then do please get in touch with the Mitten Clarke team at our Staffordshire head office. We look forward to hearing from you.
When we build our forecasts we:
- work to realistic, commercial assumptions
- take into account factors such as seasonality and your mix of sales and margins
- use realistic payment terms for both your suppliers and customers, building in sensitivity for customers paying you late
- phase in growth using a sensible lead in time, adjusting stock levels as necessary, and budgeting for one off upfront expenses
- make sure that all of your tax payments are included and paid on time, and much more.