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Cash Flow Forecast - What is it and Why do I need one

20.08.2015 by Neville Hughes


We have been speaking with many businesses, from all different sectors and the general consensus is, times are tough. If your business is facing a downturn, it is more important now than ever before to have a good handle on your cash position.

A cash flow forecast helps anticipate upcoming cash surpluses or shortages and allows the business to be better prepared for periods when cash might be tight. It aims to predict the business's future cash position by estimate all cash inflows (sales/receipts) and cash outflows (expenses/payments) for a set period of time, normally 12 months.

Knowing in advance when cash levels will be low will help identify what action is required to get the business through that time, whether it be cut costs (which could include some tough decisions about the number of staff your business employs), or apply for an overdraft increase to get you through the quiet patch.

Even if your business is not feeling the affects of the economic downturn, a cash flow forecast can also be used as an effective planning tool, allowing you to plan for one off payments such as an income tax bill or purchasing an item of equipment. It can also help assess the affordability of ongoing commitments such as repayments on a new loan or increased rent for new premises.

For more information

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Topics Business Improvement

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