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How Important is Cash Flow Forecasting?

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Categories: For the SME, Accounting, Business Strategy

Cash is king. Business owners worry a great deal about how much cash they have in the bank. It should come as a surprise to few that the number one reason why businesses fail is lack of funds. Knowing your numbers is nice, but if you don’t understand how to act on this information it doesn’t do any good.

Using a cash flow forecast in your business, three-way or direct, can provide you with more certainty into the future than a traditional Profit and Loss statement. By doing this, there are multiple advantages to be gained that otherwise would not be attainable. Some of these include managing cash surplus and shortages proactively, planning for future “what if” scenarios, and tracking spending while staying within budget. With ProfitSee, business owners and accounting firms can generate these powerful analytics instantly, using real-time data to deliver dynamic fiscal and asset management solutions.

Among the many reasons to start a business or venture, one of the main objectives is usually to make more money. Cash flow forecasting maximizes the amount you can confidently draw from the business while still meeting obligations and maintaining an appropriate cash buffer. One step towards improvement would be to start by measuring present and past performance. This allows you to identify areas that could be improved upon, or reconsidered due to lack of efficiency. As a result of evaluating the performance of a business, you can more accurately set goals and expectations that are challenging, yet still attainable. Everyone on your team will appreciate this.

It’s no secret; financial literacy is something that small and mid-size business owners struggle with. What they need is a trusted business advisor that will steer them in the right direction. Quite simply, it’s an extraordinary value proposition to business owners who want financial stability and security. Accounting firms and CPAs are in a unique position to fill this role by offering advisory services to their current base of traditional tax and audit clients. Teaching your client to understand how cash flow is affected by different decisions and timing is very beneficial to them in remaining profitable.  

Read the full article by Harriet Phimister here.

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