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4 Reasons Why a Cash Flow Forecast is Useful for Small Businesses

4 Reasons Why a Cash Flow Forecast is Useful for Small Businesses

If there’s one big factor in a startup’s demise, it’s cash flow problems.

With plenty of small businesses failing, you’ll be thinking how a cash flow forecast can be useful for small businesses, right? Well, it’s pretty useful.

A cash flow forecast is a plan showing how much money you can expect to payout, and how much you can expect to receive over a set timeframe.

Here’s our business plan writer looking at 4 reasons why a cash flow forecast is useful for small businesses!

1. Helps you expand at the right time

Isn’t expanding and growing your business exciting? It translates to more revenue, new staff members, and new markets. However, expanding the wrong way or at the wrong time can lead to issues in the longterm.

There’s no doubt that growth needs plenty of cash. Acquiring computers, hiring employees, renting buildings, and buying stock all take place way before the money starts coming in. If you can’t match your growth because there are no funds available, you’ll be running into problems one way or the other. By managing your cash flow effectively, you’ll recognize when the time is right.

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2. Safeguards business relationships

If you’re dealing with cash flow issues, chances are, you don’t have enough funds to pay your suppliers. This will negatively affect the relationship between you and your suppliers, which would in turn affect the reputation of your business.

By setting payment schedules, you’ll be able to guarantee that you have enough funds to pay the suppliers. With a cash flow forecast, you’d be planning in advance, ensuring that you don’t face multiple bills or invoices simultaneously.

3. Understand where your money is going

If you want to gain a better understanding of where you’re currently spending your money, you’ll be able to manage your cash flow effectively.

Seeing expenditures in black and white isn’t always a walk in the park. This is why effective management of cash flow is paramount. With cash flow, identifying business areas where you can cut costs becomes easy.

4. Make better plans

Thanks to an accurate cash flow statement, you’ll always know the exact amount of available funds at any instant. This is important because accurate information must support every decision and plan you make. Without careful management of your cash flow, you’d be making bad decisions that may harm your business.

While you may wonder the position of your business is quite strong, cash flow may suggest otherwise. This may be because you failed to send invoices to the clients, which is why not much money came into the business in a specific month. With a well-drafted cash flow statement, you’ll know when you shouldn’t make any significant purchase.

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As a freelance business plan writer, Kapil Munjal offers a customized business plan writing service for clients worldwide. He works with individuals and businesses to create professional business plans for bank loans, investors, landlords (retail property), government grants, and Canadian & US immigration. He has been writing business plans since 2011. Kapil holds an MBA from the University of British Columbia.