According to the D&B Global Business Failures Report , the number of small businesses going into liquidation has increased by 48 percent. If these findings are any indication, small business owners have to exert more business financial planning efforts to tighten their belt and mitigate business risks.

As we all know, risks cut across different industries. Fortunately, you can lessen these by predicting possible cash flow challenges before they become a major issue. This is exactly where a cash flow forecast comes in handy. But did you know that these forecasts can do more than just help you anticipate money management challenges? Here are more reasons why your business should prepare a cash flow forecast:

1. It helps you in budgeting.

A cash flow forecast gives you a clearer understanding of how much cash your business owns and how you can use these resources to fund your daily business operations. Managing your business finances through a cash flow forecast also helps you map out the wise use of your money.

2. It showcases your financial viability.

A cash flow forecast is valuable if you are considering a sale of your business or admitting business partners. Since it asserts the financial viability of your business, a cash flow forecast is extremely valuable in proving the worth of your business to your would-be shareholders or purchaser.

3. It measures business performance.

Is your business doing well? A cash flow forecast is vital in measuring business performance. Since these financial statements provide accurate figures for your cash inflows and outflows, you can use it to ensure improvements in business performance.

4. It improves goal-setting initiatives.

At this point, can you name the specific goals that you want your business to focus on? Failing to set your business goals may compromise your business direction. The ideal approach: Use a cash flow forecast to set your targets and have better chances of hitting those targets as accurately as possible.

5. It simplifies your financing options.

When businesses struggle with their cash flow, availing loans becomes essential in keeping your business capital on track. A cash flow forecast helps you determine a) if there is a need for loans as well as b) the frequency of loan repayment.

To say that a cash flow forecast is extremely valuable for your business is an understatement. In a nutshell, you can prepare these financial statements on a monthly or quarterly basis – depending on the phase of your business and its level of stability. The more volatile your business performance is, the more frequent your cash flow forecasts should be.

By closely monitoring the movement of money in your business through a cash flow forecast, you will make more informed business decisions.

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Posted by HTA Advisory