As you continue to optimize your company’s cash flow, you will find that cash flow forecasting can offer key benefits that can inform your investment decisions and your choices about taking on more debt. Understanding your current cash flow and predicting your receivables, further down the road, gives you a better picture of your overall financial health and sustainability.
Cash flow forecasting, when done correctly, gives you an accurate look at what your future cash flow levels will be within a given parameter. Knowing where your future strengths and weaknesses may be allows you to make decisions, today, that can change the forecast. Cutting expenses, adjusting prices, and reducing operating costs may be able to affect your cash flow forecast, allowing you to realize greater profitability.
Once you have a clear picture of your potential future income, you can decide whether you can make new investments that can positively impact your business. Likewise, you can determine if you can afford to take on more lines of credit to pay for investments, making sure your company will be able to meet these new financial obligations while still funding all of your current ones. Making these critical decisions without accurate cash flow forecasting can have a potentially disastrous impact on your overall bottom line.
If you are considering major decisions for your company’s financial future, cash flow forecasting should be a part of your business plan. These forecasts will help inform your decisions, allowing you to take smart risks for increased profits.