In the competitive world of business, companies need whatever competitive edge they can get. The best way to get ahead is through cash flow forecasting. Here are five powerful ways a cash flow forecast can help your business:
Track revenue and expenditures to budget effectively
A cash flow forecast will quickly highlight if your current revenue and expense budgets are realistic or just wishful thinking. You will be able to monitor revenue and expenses, giving you the time to make changes, to ensure you stay on track.
Your forecast should help you to identify if you’re overspending on certain costs. By identifying these costs, you can take action to pivot your business, and make changes to stay on track.
Proactively manage cash deficiencies
By determining the cash situation of your business at any given time, cash flow forecasting allows you to proactively manage your future cash deficiencies. Knowing exactly when money will move in and out of your account is immensely important for the financial health of your business.
A cash flow forecast helps to identify cash shortages well in advance, giving you time to negotiate with suppliers, secure financing, change credit terms with clients and customers, or tighten up your payment terms to bridge the cash gap.
Determine best growth opportunities
Your cash flow forecast helps to anticipate your business’s cash levels well in advance, allowing you to determine which growth opportunities, are best. Forecasting will also help determine which opportunity to pursue and which you are better off not pursuing.
Your Forecast will allow you to spot cash surpluses that can be reinvested for growth; having too much cash in the bank could mean it is gathering dust! This could lead to missed opportunities to grow your business. A cash flow forecasting app like Float can help you identify these cash surpluses, and will help you use this surplus for profitable growth.
Scenario plan for future 'what if' questions
It is often hard to know which is the best path for your business. With scenario planning, you are exploring the impact of different decisions on your business’ cash flow. This will help you to determine the feasibility of your plans.
Can you afford to hire a new member of staff? When do you have enough cash to open a new office? Can you weather a sales downturn? By creating a scenario, you are scoping the viability of these questions, and giving yourself time to prepare.
Determine flexibility in meeting problems and making critical decisions
By forecasting your business’ cash, you are measuring your ability to weather problems, and testing the impact of decisions on your cash. Your forecast will help decide how much cash you should keep as a cushion, and this cushion will give you the flexibility to make mistakes. Businesses that run too close to the wire are limiting their options, and leaving themselves at the mercy, of every little change in the market.
Conversely, having too much cash means a business is not maximizing opportunities.
Your virtual CFO will help to determine how much cash you should keep on hand to protect your business and to help your business grow at optimal levels.