cash flow forecast

For a healthy and successful business, it is super important to monitor the profit, cash flow, and cash availability. To make your business run in long term, you need to make profits along with operating with cash flow.

By the term cash flow, we mean the amount of money both coming (Inflow) and going (Outflow) from your business. It is crucial for managing daily tasks such as paying employees, purchasing inventory, taxes, and operating costs.

Remember that if you have negative or low cash flow, then you will face problems such as overspending/ordering extra stock. Fast-growing companies need cash to hire employees, buy stock, etc, so it is important to understand what is cash flow and its importance.

Importance of Cash Flow

Lack of cash is a major reason why 80 percent of businesses fail. It means the company is “running out of money,” so, this problem can shut down your company faster than any other issue.

We all know, that having sufficient cash is important to pay bank loans, expenses, employees, taxes, products, etc. Let’s explore more reasons why positive cash flow is significant. 

Starting a Business

When you are planning to start a business, then dealing with cash flow problems is very tough. You have numerous problems including expenses and cash is quickly going. Also, you have no sales or fewer customers. Here, you need more sources of cash via a temporary credit line to create a positive cash flow.

The initial months of a business are sensitive when it comes to cash flow. If you don’t acquire sufficient cash or don’t perform a cash flow forecast, then success chances will come down. 

Suppliers usually won’t offer credit to fresh businesses, and your clients might want to pay via credit, which can give you a cash crunch.

Estimating the cash flow of your business means including your personal surviving expenses that come out of your startup. This means, the fewer personal expenses you take out from the business, the more you can give to the business.

Seasonal Business

The importance of cash flow for seasonal businesses can’t be denied. Normally these businesses fluctuate at different times annually such as holiday or summer businesses. Handling cash flow in such a business is tricky, but with some diligence, it can be done.

Cash Vs. Profit

You can’t make a profit in a business until you have cash. The reason is profit is a concept related to accounting, and cash is the amount in the checking account. Also, profit won’t pay the bills, for instance, you can have accounts receivable (money customers owe you) but if are unable to collect it, then you will not have any cash. 

Profitability = Positive Cash Flow (Is it True?)

Well NO, a business can be profitable enough while still facing a cash crunch. The reason is, that a company can have its huge revenue amounts stuck in accounts receivables (money that has to be collected). Here, an income statement will not show a clear picture of the business’ cash activity.

Importance of Cash Flow Statement

The cash flow statement is super important to check the cash position of a company. Cash position means its inflow as well as the outflow. It helps companies to plan for the long term and analyse the working capital required in a business.

Three categories come under cash sources and how the cash is divided. It includes:

  • The statement of cash flow from operating activities. It focuses on the cash flow coming from the major activities such as merchandise selling and buying, provision of the services, and many more.
  • The statement of Cash flows from investing. It provides purchase details and sales.
  • The statement of Cash flows from finance. It focuses on company sales and stock purchases.

Let’s understand its importance by following pointers. 

  • Enables investors to make use of the details of the company’s cash flow for future analysis.
  • Shows any kind of modifications in the balance sheet, so that operating, financing, and investing activities could be analysed.
  • Provides crucial insights about the solvency and liquidity of a firm.
  • Shows the entity’s financial position at a time.
  • Helps in giving details about the cash-generating abilities.
  • Investors and shareholders compare the statements of cash flow of various companies to analyse their earnings quality.
  • If the company has obligations of long-term debt, a Cash Flow Statement can help the shareholders as well as the investors to determine the repayment possibility.

Tools To Use to Monitor Cash Flow

Checking a cash flow statement is best to monitor the cash activity of your company.

Some standard accounting software including Quickbooks provides cash flow statement available report options. The statement breaks down your business’s cash flow into three categories:

  1. Investing activities such as inflow and outflow of fixed assets.
  2. Day-to-day activities like credit card and cash receipts.
  3. Financing activities such as investment capital.

Positive Cash Flow: Two Major Driving Factors

There are two factors that drive Positive cash flow: Organisation and Planning.


It is a baseline. Look at the amount of cash you have in your hand, it could be the loan, investment from a partner, cash in the account. Here, you have to make a plan. Start with making a list, of expenses you have paid, or need to pay. Think incorporation fees, licenses, and permits, legal and accounting, construction or remodelling, purchasing property, a security deposit (rental agreement), and signage, initial supplies or inventories, cash registers, furniture, equipment,  office supplies, etc.


Planning means you need to recognise the monthly cash sources that are expected. These can be, loans you know will come on a specific date, projected sales, investments from partners, your personal investments. 

If you’re a fresh business owner that you might have to project your sales conservatively. But if you already have started the business, then you can go through your company’s sales history. You can do a cash flow forecast as it will give you a decent idea about future sales and what changes you can make.

Final Take

No matter what your business goals are, managing the cash flow always comes first. You should check the statement report to identify where cost reduction could be made to generate positive cash flow. We hope this informative post is sufficient to enlighten you about the concept of cash flow and its significance.

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