According to the Victorian State Government, 80% of business failures are caused by problems with cash flow.
It’s a sobering statistic.
With cash flow problems at the heart of so many failed businesses, it’s clear that understanding cash flow and avoiding problems with it are imperative for business success.
So, how do you ensure your business is safe?
Cash Flow Forecasting
A cash flow forecast is a prediction of how much money will come into and go out of your business in a given period of time. In other words, it’s a forecast of your expected income and expenses and how that affects your available cash.
Cash flow forecasting helps your business to run smoothly, avoiding many of the cash flow crises that can bring a business crashing down.
Here are just a few ways cash flow forecasting can help keep your business safe and running smoothly.
With a cash flow forecast, you can be aware in advance of the likelihood of any cash shortages, and the likely timing and quantity of such shortages. This allows you and your bookkeeper to implement strategies to mitigate any potentially damaging effects.
Cash flow forecasting can also allow your bookkeeper to help you assess the feasibility of hiring new staff, acquiring new assets, and making other purchases. By balancing the costs against expected gains, you can see whether such moves will be profitable or detrimental for your business, allowing you to make better decisions for your business.
Cash flow forecasting can also help you measure your business’s performance, as your bookkeeper can conduct variance analyses that compare your actual income and expenses with your forecasts. This can help you identify areas for improvement, and provide early warning signs for areas of your business that are under-performing.
Every business is different, and so every business’s cash flow forecasting requirements are different too. Some businesses can operate with monthly or fortnightly forecasting. Others require weekly or even daily forecasting. Your bookkeeper can help you identify the most appropriate forecasting periods for your business.
There are also different types of cash flow forecasts. Once again, a qualified, professional bookkeeper can advise you on what would best suit your business’s unique needs.
Do you want to protect your business by implementing cash flow forecasting?
EzyAccounts can help you identify your business’s unique cash flow forecasting requirements. Call us today on 1300 313 397 for a FREE initial consultation. We look forward to helping you invest in your business’s success.