Cash flow, a two-way mechanism, is the life-blood of business in India. The incoming and outgoing flow of cash in a business is known as cash flow.
In a business, cash usually comes in when customers buy your products or services, and cash goes out of your business in the form of payments for expenses, such as rent, monthly business loans payment, taxes, salaries, etc.
To keep this cash flow healthy and constant, forecasting as a tool is used. This aids in obtaining an estimate, or forecast, of a company’s future financial position. This is also a core planning component of financial management within an organisation.
A good business needs positive cash flow, and this is something that needs to be monitored at every stage of business growth. If SME India is not ready with its forecast, it could unfortunately fail despite an increase in sales.
A cash flow forecast typically consists of making a sales forecast, generating a profit and loss forecast and creating the cash flow forecast. These in-depth analyses help businesses, whether they have availed of any business loans, to track expenditure, adhere to the budget, plan cash for the future and figure out when to reinvest in the business.
Having said that, many small businesses face challenges when it comes to maintaining a cash flow forecast. This is because, to maintain a moving target, such as cash flow, consistency is a must.
Many small business owners tend to neglect updating the same regularly and as a result fall behind and end up miscalculating financial predictions for their business, which results in huge losses.
Thus, as you can understand, poor monitoring kills cash flow forecast. On the contrary, proper bookkeeping can help you track and record all your receipts and bills.
It is also advisable to be consistent in undertaking your bank reconciliation weekly so that both your data as well as your business forecast is on the right track.
Monthly reports help too. They keep your business cash flow in perfect shape.
It is also recommended to plan and forecast the future of your business regularly to avoid risking your business and slowing your path to success.
Cash flow forecast is the key to a successful business. Not only does it give you a vital prediction about your business’ chance of survival in different scenarios, but it also gives your business the best possible likelihood of success in the coming financial year.
Prepare for cash flow forecasting by using progressive and efficient softwares such as Float or Dryrun. They will not only reveal your projected cash position every month, but also help you test the effects of different business scenarios.