Last edited 03 Mar 2016

Cash flow forecast

A cash flow forecast is an important business tool for every business. The forecast establishes whether there is enough cash to run the business or to expand it. It will also reveal when more cash is going out of the business, than in.

A cash flow forecast (also called a 'cash flow budget' or 'cash flow projection') helps identify whether a firm needs to borrow, how much, when, and how it will repay the loan.

Building a cash flow forecast allows an evaluation of cash resources that are required and when they are required by. Business owners can identify likely future gaps in funding and plan for those gaps accordingly. It is a vitally important tool for predicting the continuing financial health of the business.

Additionally, cash flow models enable business owners to assess 'what if' scenarios by changing key variables to see how vulnerable the business is to price changes, staffing levels, exchange or interest rate movements, and other key drivers.

In larger organisations the cash flow projection can be integrated with day to day operations. This can help identify what production is necessary, what resourcing is required and can provide an assessment of the capacity within a business.

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