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Do I have to forecast my business’ cash flow?

cash flow

Understanding your business’ cash flow helps you plan costs and avoid problems before they happen.

Cash flow is the heart of your business. And when it comes to cash flow management, preventing cash issues is far easier than trying to solve them after they happen.

Your cash flow is what it sounds like: the amount of cash that’s flowing in and out of your business. Positive cash flow comes from balancing your income, which is your cash inflow, against your expenditure, which is your cash outflow. If you’re in control of this, then your business should always have the liquid cash needed to cover your liabilities.

Reasons to forecast your cash flow

Forecasting works by taking your cash data from prior periods and projecting it forward in time, giving you a glimpse of the future health of your cash flow.

By running detailed cash flow forecasts, it’s possible to do the following three things. 

  • Understand your future operational cash flow. This helps you to see the seasonal dips or the projected drops in income, and get the early warning signs you need to take action.
  • Plan your costs and expenditure effectively. You can work on cost management and reining in expenses, and therefore you can reduce your future outflows.
  • Avoid the cash flow issues before they happen. Forecasting your cash flow gives you the information you need to plan ahead, take clear action and stay in control of your cash status.

The bottom line

Keeping track of your cash flow is important. But you also need to use that information to forecast and predict your cash flow in the future.

Forecasting your cash flow can help you catch problems before they happen and identify times when your cash inflow tends to dip.

If you’re not already forecasting and tracking your cash flow, contact DiMercurio Advisors for free to see how you can get started.

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