The importance of cashflow forecasting

Nicola van Rijn - 10 Sep 2022

Introduction to Cashflow Forecasting

Cashflow forecasting should be an essential practise in every company, as it enables you to predict and manage the inflow, outflow, and availability of cash at every point in time. This helps to ensure there is enough cash on hand to meet financial obligations and invest in growth opportunities.

Why would you do Cashflow Forecasting?

The purpose of cashflow forecasting is to be able to anticipate potential cash shortages, or surpluses, and plan accordingly. If a cash shortfall is to be expected in the near future, you can take steps to address it, by seeking additional funding or delaying non-essential expenditures, or agreeing different payment terms with customers or suppliers. In this way, you can avoid situations where your company might short of of cash.

Identify Growth Opportunities

Cashflow forecasting also enables companies to pursue growth opportunities. For example, if you were to forecast a significant increase in cashflow in the near future, you can plan ahead new projects or investments, to be financed by future cashflows. As a result, your company can grow in a controlled manner and be more profitable.

As well as providing these benefits, cashflow forecasting helps companies track their financial performance and identify areas for improvement. Profit & Loss statements and Balance Sheets only tell part of the story, but cashflow is what really matters at the end of the day. Cash tells you how your business is really doing, and when to save, or when to invest.

Attract Financing to Fuel your Business

Another advantage of cashflow forecasting is that it is a requirement for most lenders, investors, and other stakeholders who will want to see projection of the company's cash flow before making any financial decisions. Having accurate cash projections is therefore critical for companies seeking investment or financing.

In conclusion, cashflow forecasting is an indispensable process for companies, as it allows them to predict and manage the inflow and outflow of cash. Using cash flow forecasting, companies can avoid financial difficulties and grow their business by anticipating and planning for potential cash shortages, identifying and pursuing growth opportunities, monitoring financial performance, and providing stakeholders with necessary information.

How XLReporting Helps To Project Cashflow

XLReporting is software that can help companies to improve their cashflow forecasting. It enables you to create detailed, accurate cashflow forecasts by automating the process of collecting, consolidating, and analyzing financial data. This can help to save time and reduce errors, while also providing more accurate and useful forecasts.

By using XLReporting, companies can gain greater visibility into their cashflow and financial performance, which can help them to identify trends, opportunities, and areas for improvement. For example, XLReporting can help to identify which customers or products are most profitable, and which are the most cash-intensive. This can help companies to make better decisions about where to focus their resources and efforts.

Additionally, XLReporting can also help companies to automate the budgeting and forecasting process, which can help to ensure that they have the necessary resources to meet their financial obligations and pursue growth opportunities. This can help to improve financial planning and decision-making, and to better manage resources.

Furthermore, XLReporting can also help to improve collaboration and communication within the organization, by providing a centralized platform for financial data, it can help to streamline the budgeting and forecasting process, and to ensure that everyone is working with the same information.