Cash flow forecasting is about predicting when money will move in and out of your bank account in the future. It’s easy to see how much cash you have in the bank today (you just check your bank balance). But if you want to know what your bank balance will be next week, or next month, or next quarter, you need to do a cash flow forecast.
The amount of cash you have in your bank account dictates what you can and cannot do. Say it’s the end of the month and you need to pay your employees. It doesn’t matter how much money you are owed; either you have the cash to pay your staff, or you don’t.
This is just one example of why it is incredibly important for business owners to know how much money will be available to them at any point in the future.
But cash flow planning and forecasting goes far beyond the day-to-day management of money in and money out. It touches on many other business areas such as: when to invoice, how to collect payments, credit terms, supplier relations, capital expenditure, hiring, firing, buying, selling, reporting and more.
Planning and managing your cash is the backbone of any successful business, regardless of what success means to you. For high growth enterprises it means you can invest smarter in growth whilst avoiding bankruptcy.
If work/life balance is more important to you than maximising capital value then it means fewer surprises and less firefighting, freeing up your time to spend however you choose.
If you use Xero, QuickBooks Online, or FreeAgent, you can use Float to help you forecast your cash. We can’t do the forecasting for you, but we can eliminate the need for you to manually update all your accounting data each day to keep your forecast up-to-date. With our real-time integrations with QuickBooks Online, Xero and FreeAgent, we can pull in all of your bills, invoices and transactions each day, updating them if they get paid or become overdue, populating your rolling forecast and giving you an accurate starting point.
Float does not do profit and loss forecasting
The reason for this is a profit and loss (P&L) forecast does not reflect your liquidity (how much cash you have). Raising an invoice is very different from getting paid. Paying a bill means that cash leaves your bank account whereas receiving a bill simply means you owe money. It doesn’t matter how healthy your P&L forecast looks, you could still go broke tomorrow if you don’t look at your cash position.