My Business Manager: Cash Flow ForecastIan McManus
Mis-management of Cashflow has been the number one cause of business failure for the last 60 years. More businesses fail for lack of cash flow than for want of profit. Cash flow forecast is critical to business success.
Profit, the difference between sales and costs within a specified period, is a vital indicator of the performance of a business.
While a sale may have been secured and goods delivered, you may not see payment right away. At the same time, you have to pay suppliers, staff etc., you have to invest cash in rebuilding depleted stocks and new equipment.
The net result is that cash receipts often lag cash payments and the business may experience a short-term cash shortfall. For this reason you must forecast cash flows as well as project likely profits.
My Business Manager creates Cashflow Funds Statements that show the source of funds and where they have been used within the business. Once budgets and forecasts have been created, My Business Manager cash flow forecast can forecast the cashflow required to fund the budgeted growth and show where you may need to extend overdraft limits or increase debt.
Here’s what a My Business Manager Cashflow statement will tell you:
• Cash inflows (receipts from sales, increases in bank loans, proceeds of share issues and asset disposals, and other income such as interest earned)
• Cash outflows (payments to suppliers and staff, capital and interest repayments for loans, dividends, taxation and capital expenditure)
• Net cashflow: the difference between the inflows and outflows within a given period
• Cashflow projections and short-term banking requirements
• Possible funding requirements and likely financial consequences of alternative strategies
• The effects on cash flow of varying sales, costs or credit terms
A projected cumulative positive net cashflow over several periods highlights the capacity of a business to generate surplus cash and, conversely, a cumulative negative cash flow indicates the amount of additional cash required to sustain the business.