A cash flow forecast is a tool used in financial planning or budgeting to show the estimated cash inflows and outflows of a business or a specific project. Understanding the forecasted cash flows of a company is a vital part of its finances. Cash flow forecasts typically consist of estimates for the upcoming 12 months but can also include shorter or longer periods.
The cash flows of a business play a critical role in its success, in addition to its profits. Therefore, companies need to keep a close eye on their cash flows, whether present or future, to ensure survival in the long run. A cash flow forecast acts as that tool that can help businesses proactively control their cash matters and identify any deficiencies on time.
Importance of Cash Flow Forecast
A cash flow forecast can provide businesses with many benefits. Some of the points that signify its importance include the following:
Conclusion
A cash flow forecast estimates the cash inflows and outflows of businesses. It can play a vital role in the success of the company. Among other things, cash flow forecasts act as a planning and monitoring tool, help track payments and receipts, ensure the timing of cash flows is sufficient, and help with decision-making.