Category: Business Planning

Blog articles about business planning and development

What problems could a firm face if its cash flow forecast proved unreliable?

By Russell Bowyer

The problems a firm could face if its cash flow forecast proved unreliable may simply be the same if the forecasts were not prepared in the first place. However, at least by preparing cash flow forecasts, and especially if you include a worst-case scenario, you should be prepared for any downside of the base-line projections for your business. The effects of cash flow problems for a business where the forecasts are unreliable could lead to real cash flow difficulties for the business, unless your firm is able to secure additional funding from the bank or other external funding sources.

Cash flow forecast software with opening balance (Easy opening balances)

By Russell Bowyer

Cash flow forecast software with opening balances is the same as a car with wheels. In other words, a car without wheels isn’t a car and neither is software without an opening balance feature cash flow forecasting software. If you’re a business with accounting periods before the beginning of the cash flow forecast period, you will have opening balances. At the very least you’ll have a starting bank balance to bring forward. But more than likely you will have opening balances of amounts owed to your business by customers and amounts owed by your business to suppliers. Then there’s opening stock, loans and fixed assets and depreciation to consider.

Why would a bank manager want to see a cash flow forecast?

By Russell Bowyer

Why a cash flow forecast is important to your bank manager is so they can build trust in you and your business. Being able to produce professional forecast reports, together with being on top of your numbers, will help to earn their trust. Your bank manager needs to see a cash flow forecast in order to approve loan applications. They will use your forecasts in conjunction with your management accounts and historical accounting information to confirm your business is viable and able to comfortably repay the loan. The combination of the forward period reports together with historic data will help to build a picture of credibility.

Cash flow software with depreciation (Depreciation non cash expense)

By Russell Bowyer

Cash flow software with depreciation included as a function will do so showing depreciation as a non cash expense. This means that whilst the cash flow software takes account of deprecation, this is not for the purposes of reflecting it in forward period cash flows. But is instead to include the depreciation expense on the forecast profit and loss, the projected balance sheet and the forecast cash flow statement reports instead. Additionally, deprecation is an add back for tax if you intend to add forecast tax payments into your cash flow reports.