What is meant by a cash flow forecast
Cash flow is the movement of money in and out of a business over a period of time. Cash flow forecasting involves predicting the future flow of cash in to and out of a business’ bank accounts. A cash flow forecast will usually be for a 12-month period. Forecasting cash inflows and outflows is important, especially for three types of business:
- new businesses
- fast-growing businesses
- businesses with unpredictable sales patterns, for example seasonal businesses, eg an ice cream van
A cash flow forecast allows a business to plan for the future. It can therefore assist the business in making important decisions, such as:
- employing more staff
- opening a new branch
- investing in a new business
- rewarding the owners for their success
Cash flow forecasting can also help a business to identify the risks of negative cash flow.
