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Achen Henderson Guru

Cash Flow Forecasting Service

What is cash flow forecasting?

A cash flow forecast is the process of estimating and planning for the inflow and outflow of cash within a business over a specific period. It’s used to predict how much cash a company is expected to generate or spend, allowing for better financial management, and decision-making, and ensuring that a company has enough liquidity to meet its financial obligations.

Cash flow forecasting can be a huge headache for business owners. While it’s often an issue for startups, cash flow can plague entrepreneurs throughout the life of the business, leaving you feeling out of control and unable to achieve your goals. Getting a handle on cash flow can make an enormous difference in your quality of life and level of success.

Business owners often run into cash flow problems because they draw too much money out of the company without properly anticipating the company’s inflows and upcoming liabilities. Many business owners simply don’t have the tools they need to properly forecast cash flows.

Why a cash flow forecast is important?

Cash flow forecasting plays a crucial role in the financial management of a business. Having a good month, and a high net income doesn’t necessarily mean you can take a bigger draw or spend more on things like new equipment. Yet many business owners make this mistake. It causes problems, like being unable to meet other financial obligations, such as income taxes, GST, or payroll remittances. While you may have had your best month ever, your financial situation is currently constrained due to the funds being tied up in your
accounts receivable.

While you may have experienced your most successful month to date.

This is why there are several benefits to using a cash flow forecast, such as:

  • Spotting potential cash flow problems
  • Confidently pay employees and suppliers
  • Instil confidence in investors or lenders
  • Identifying trends and planning for the future
  • Avoid cash shortages and make more informed financial decisions by having a cash flow forecast.

How to forecast cash flow

To properly manage your cash flow, you need to monitor all your receivables and payables—what’s coming in and what’s going out.

You may be able to solve your business’s cash flow issues by working with your CPA. At Achen Henderson CPAs, we address cash flow early on in our work with clients to help ensure they understand their upcoming collections and obligations to help them achieve their goals. This involves evaluating the financial condition of the company, budgeting, forecasting future financing requirements, tracking sources and uses of cash.

Financial management services are part of our Fractional CFO packages. Accurate cash flow projections require us to get to know your business and industry. You also need to be realistic. You might think it’s better to assume you’ll hit the high numbers, especially if you’re doing a cash flow projection to obtain financing, but that only puts you and your business at risk.

Types of cash flow forecasts

There are two main types of cash flow forecasts, the direct method and the indirect method.

  • Direct cash flow forecast method: focusing on detailed cash inflows and outflows of a business, such as precise estimations of revenues, expenses, and other financial transactions. It can show the cash positions of specific future points.
  • Indirect cash flow forecast method: starting with the net income of a business and adjusting for non-cash transactions (such as inventory), and changes in work capital. It’s often used to forecast cash flow when the detailed date is unavailable.
    Both methods are used to predict and analyze cash flows within a business. The direct method is a more detailed approach whilst the indirect method relies on accounting data and is often used for long-term financial planning.

Use cash flow analysis & projections for success

Cash flow analysis and projections help you make better decisions regarding whether or not your business can expand, hire some help, buy a vehicle, sustain a tough period, and so on, without running into financial difficulty. 

Contact us today to learn how we can help you understand and improve your cash flow situation.