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Cashflow forecast made easy

Now more than ever, businesses should consider preparing cashflow forecasts. This will give you an indication of your future cash position and help you to avoid any nasty surprises. There are several different ways to prepare a cashflow forecast, but the most important thing is to make sure that it is accurate. This means taking into account all of your income and expenditure, both regular and one-off items.

What is cash flow for casting?

Cash flow for casting is a method of accounting that tracks the inflow and outflow of cash within a company. It is used to assess a company’s financial health and stability and predict future cash needs. Cash flow for casting can be used to make strategic decisions about investments, operations, and financing.

Inflow refers to the cash coming into a company, while outflow is the cash leaving the company. The cash flow goal for casting is to ensure that there is enough cash on hand to cover all expenses, both current and future. A positive cash flow means that a company has more money coming in than going out, while a negative cash flow indicates that it is spending more money than it is taking in.

According to the Australian Bureau of Statistics

Half of all small to medium businesses fail in the first three years of operation. The Australian Securities and Investment Commission states that poor cash flow is cited as a factor in 40% of business failures. Indeed, as Australia emerges from an economic recession, cash flow will be a key issue for all businesses – not just start-ups.

All businesses need to ensure they have sufficient cash at a particular time to pay their bills. Cash is needed constantly in order to discharge a wide range of payment obligations that arise from many sources, including:

  • the ATO
  • suppliers
  • banks
  • employees, and
  • insurers.

Importance of cashflow forecast

A cashflow forecast is a crucial cash management tool for operating your business effectively. Specifically, a cashflow forecast tracks the sources and amounts of cash coming into and out of your business over a given period. It enables you to foresee peaks and troughs of cash amounts held by your business and, therefore, whether you have sufficient cash to fund your debts at a particular time.

Moreover, it alerts you to when you may need to take action – by discounting stock or getting an overdraft, for example – to make sure your business has sufficient cash to meet its needs. Cashflow forecasts also allow you to see when you have large cash surpluses, which may indicate that you have borrowed too much or you have money that ought to be invested.

In practical terms, a cashflow forecast can also:

  • reduce your reliance on external funding
  • improve your credit rating
  • assist in the planning and re-allocation of resources, and
  • help you to recognise the factors that have a major impact on your profitability.

At this point, a distinction should be drawn between budgets and cashflow forecasts.

While budgets are designed to predict how viable a business will be over a given period, unlike cashflow forecasts, they include non-cash items, such as depreciation and outstanding creditors. By contrast, as stated above, a cashflow forecast focuses on the cash position of a business at a given period, and Non-cash items do not feature. In short, budgets will give you the profit position; cashflow forecasts will give you the cash position.

A cashflow forecast is usually prepared for either the coming quarter or the coming year. Whether you choose to divide the forecast up into weekly or monthly segments will generally depend on when most of your fixed costs are incurred. When you are making forecasts, it is important to use realistic estimates. This will usually involve looking at last year’s results and combining them with economic growth and other factors unique to your line of business.

Usually, a forecast will list:

  • receipts
  • payments
  • excess receipts overpayments (with negative figures displayed in brackets)
  • opening balance
  • closing bank balance.

In conclusion,

it is evident that a strong understanding of cash flow is critical for the success of any business, large or small. By regularly monitoring and forecasting their cash position, businesses can make informed decisions about best allocating their resources to maximise profitability and avoid financial difficulties further down the line.

If you are uncertain about preparing a cashflow forecast, consult your bookkeeper or accountant.

Contact Ingrams Accounting if you have any questions about cashflow forecast, and how it may impact you or your business moving forward.

This information is general and has been prepared without considering your objectives, personal or business circumstances, financial situation, or needs. Because of this, you should, before acting on this information, consider in consultation with your adviser its appropriateness, having regard to your objectives, personal or business circumstances, financial situation and needs.

Chris Sheppard

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