cash flow forecast Flashcards
(5 cards)
What is a cash flow forecast?
It’s an estimate of the amount of money you expect to flow in (receipts) and out (payments) of your business and includes all your projected income and expenses.
Why is the cash flow forecast important?
It can help you, later on in time when you might want to take a loan out.
When a you use a cash flow forecast?
Cash flow forecasts can help predict upcoming cash surpluses or shortages to help you make the right decisions. It can help in tax preparation, planning new equipment purchases or identifying if you need to secure a small business loan.
You can also use it to see the effect of an upcoming business change or decision. If you’re considering hiring a new employee for example, you’d add the additional salary and related costs into your forecast. The new figures in your cash flow forecast will tell you whether hiring that additional employee is likely to place your business in a stronger position and help you decide whether to hire them or not.
Including best, worst and most likely case scenarios allows you to see how your business will fare if you suddenly hit tough times or better than expected trading conditions. Knowing how this effects your cash position allows you to make informed and educated decisions, and you’ll be more confident of running your business.
- See more at: http://businesstips.nab.com.au/cash-flow-management/use-cash-flow-forecasts/#sthash.lYI5Aths.dpuf
can you use a cash flow forecast to assure that your business is meeting expectations?
Yes you can. You can use your cash flow forecast to check if your business is meeting your expectations. Comparing your actual income and expenses with your forecasts can identify areas where your business is over or under performing. Reviewing your actual performance against your forecasts alerts you to any variance so you can investigate and find out why there is a difference.
If your sales are higher or lower than forecast for example, you’d want to find out why. Are your forecasts too high or too low? Has a competitor changed strategy or has a new competitor entered your market? Do you have a customer service or quality control issue? Using forecasts in this way allows you to actively manage your business. It empowers you to ask the right questions, and ultimately make the right decisions.
- See more at: http://businesstips.nab.com.au/cash-flow-management/use-cash-flow-forecasts/#sthash.lYI5Aths.dpuf
How do you you prepare for a cash flow forecast?
The first step is to estimate your likely sales for each week or month. Use your previous sales history from the last couple of years to get a good idea of the level of weekly or monthly sales you can expect. It’s unlikely that your sales will be constant so include seasonal patterns and one-off events such as trade shows, in your projections.
If you’re only just starting a business, you’ll need to estimate your forecasts based on information from customer surveys, suppliers, industry experts such as your NAB Small Business Banker, and the performance of similar businesses.
