What's the forecast of cash flow?

Cash Flow Forecast is a process of estimating the cash inflows and outflows of enterprises over time. Unlike the accounting profit statement, cash flows are concerned with “when money arrives” and “when it is paid”, not just whether the transaction occurred.

Three core values for cash flow projections

1. Early warning of financial crises: By simulating the income and expenditure for the next six months, you can identify possible negative balances several months in advance, thereby raising loans or reducing expenditure.
2. Optimizing resource allocation• Identify months when cash is sufficient to be used for research and development or to increase market share.
3. Decision-making on supplementary investment financing• Professional cash flow programmes are an important reference for bank credit approval and venture capital.

How can the accuracy of projections be improved?

Conservative estimate of income: Market volatility and seasonal effects should be taken into account when setting monthly growth rates, rather than over-optimistic.
Full charge cost: Do not miss out on maintenance costs such as corporate income tax, social security pension adjustment or contingencies.
Focus on the return cycle: If your business involves a period of accounts, make sure that the “sale income” entered is the amount actually received during the month.

A little tip for cash flow management

Keep your seating pads on.: It is recommended that cash on hand cover fixed operating expenses (i.e., “burning rate”) for at least 3-6 months.

Expedited recovery of accounts receivable•: The cash cycle (CCC) can be significantly improved by providing incentives for early payment by clients through discounts.