The importance of positive net cash flow into a business cannot be emphasized enough. Quite simply, cash, or available liquid funds, is vital to the survival of any business. It is needed to buy materials and other supplies, including services.
Many funding organisations, including banks, will require at the very least cash flow forecasts if you are making an application for funding.
We recommend to all our clients that they have available up to date and realistic forecasts whether they are making an application for funding or not. We recommend this for managing working capital, and for future investment purposes, not forgetting the effect on cash if there were a significant increase in activity or if there were to be a sudden downturn in activity such as the effects due to the recent pandemic.
Our forecasts don’t just include the cash flow forecast. The question that we ask is where does the cash to run the business come from as there are only two ways to fund a business, either through equity (including retained profit) or debt. Therefore, we prepare our own ‘three way’ forecasts.
Three way forecasts include, a profit and loss account forecast, a forecast balance sheet, and a cash flow forecast. Each of these financial statements are stand alone and provide unique information to help us in our forward planning, whilst at the same time there is a link between each of the three financial statements.
We use our own templates which compare budget with actual and which we adapt to the unique requirements of each client.