Skip to main content Skip to search
Why cash flow forecasting is important for your business growth?

Small businesses and young start-up owners often find it difficult to manage their business without any cash flow forecasting. Initially, without appropriate cash flow forecasting, you might think that your business is on the right track but maybe it will not stay for long. You may have no idea of potential dangers that could slow down your business growth.

Now let’s first see what is cash flow and why is it so important and how can you improve cash flow forecasting of your business with us, Mfhills. At MFhills, we are helping both our small and large business clients with financial issues for many years. Today we have a proper team to help with cash flow forecasting for start-up and small businesses.

What is the cash flow?

Cash flow is the movement of money that entering and leaving your business every month. We say there is a “positive cash flow” when your business has more cash entering into your bank than the amount you are spending. Similarly, a “negative cash flow” means more amount of money is going out of your business than coming in. Cash is coming in from the clients and customers who are purchasing your products and services. And cash of going out of your business in the form of expenses like mortgage or loans and tax payments and other accounts payable. It may seem to be a simple concept but it must be taken seriously.

Why cash flow forecasting is important?

An appropriate cash flow forecasting is a valuable tool for business growth that allows you to predict the correct amount of cash you might have with you at the right time. Proper forecasting might help you to foresee cash gaps and excess cash in advance. Here are some points on why cash flow forecasting is required:

This is a building block of your business:

As a start-up business owner, Setting up and maintaining a proper cash flow forecast must be the cornerstone of your business model. Proper cash flow is a part of the infrastructure that your business needs to increase sustainability. Before buying more office space or hiring new staff, you must forecast how these actions are going to impact your cash flow. Understand whether the actions are feasible to minimize further risk in cash flow statements.

Forecast cash gaps and excesses before they happen:

Forecasting cash flow gives your organization enough time to take necessary action to prevent the crisis. Forecasting your bank balance allows you to see when you may have a cash shortage that might be an obstacle in your start-up business growth. In another perspective, knowing the surplus amount of money you might have in the coming months will help you to think about re-investments options to drive growth.

Gaining stakeholders trust:

Unlike business owners, the investors and financing providers are not stuck in one thought, which means they like to think about big achievements. Investors want the business owners to provide them with a clear picture of future achievements form the business they will invest. Businesses need to provide the investors with regular cash flow statements including the best and worst cases of cash flow forecasting. An accurate forecast will trigger confidence and trust among investors and raising more money as investments will be easier.

Properly track and stay within your budget:

Even one late payment from the customers may drive you into the red zone. Every time your guesses for future cash flow might not be correct. You might look into your business’s profit and balance statements which reflects the current scenario but will not give you the future predictions in terms of cash flows. In simple words, to get the “real and accurate” you should make proper forecasting and then can compare the predictions with your guesswork which is based on invaluable data.

Improve your credit control process:

Cash flow forecasting is based on actual invoices and bills of your organization. In this way, you can track which customers are paying late regularly and use this information you can enhance the credit process of your business. You can even create different payment dates for invoices that are overdue and see how the late payment affects your cash flow forecasting.

How MFhills can help you with cash flow forecasting:

We at MFhills will provide you with accurate cash flow forecasting at regular intervals. Our team uses cloud accounting software to present you with clear and simple spreadsheets. The forecast will help to take action to manage receipts and expectations with payments and search for funding when required.