Why Is Cash Flow Planning For Business Important?

Jul 7, 2022 | Business, Business growth, Business performance, Business planning, Cash flow, Financial Planning

Why Is Cash Flow Planning For Business Important - a magnifying glass on top of cash

Cash flow forecasts or cash flow planning for startup businesses, for example, has to do with estimating or forecasting your likely future sales and expenses. But why is cash flow for business important?

Well, cash flow planning, no matter what kind of business you’re running, is an absolutely vital business tool as it indicates whether you have enough cash to sustain your business and grow it. Even a simple cash flow forecast template in Excel can easily show whether more cash is going out of the business than coming into it.

Why Is Cash Flow Planning for Business important?

Using the example above, a cash flow forecast allows businesses to track the estimated or expected cash movements over a specific timeframe in the future.

However, it pays to understand that a business’s profit at any given month end is not a true reflection of how much money is coming into it as revenue.

How do you get a  proper cash flow forecast.  Well, use paper, spreadsheet or have your accountant it for you!.  Using Numbers Know How makes it possible to estimate the amount of ‘money in hand’ you have at any moment in time.

Similarly, if you take into account VAT, payroll taxes, wages, loan repayments, Corporation Tax payments and other overheads, you might find yourself in even more muddied waters!

Therefore, without a proper cash flow forecast example to act as a guide, you would indeed find it nearly impossible to make good business decisions, plan any positive changes or set yourself for growth.

Cash Flow Forecast Example to help you see how important it is

Let’s say your company is selling Product ‘A’ during a 75-day business cycle.

You buy Product A from your supplier, have the stock for 45 days before you sell it.

Your suppliers give you 30 days to pay, and you ask customers to pay you within 30 days.

Now, between day 0 and day 30, you received goods in your warehouse and made the payment to your supplier. Between day 30 and day 45, your customers placed their orders and the goods were shipped. Between day 45 and day 75, you receive income from your customers on day 75. So, clearly there’s a cash flow gap between days 30 and 75 – you’re waiting 45 days to receive payment from your customers.

You’re probably not selling just one kind of product, right? All your products have varying lead times, so how can you accurately determine how much money will be available from each one of your product income streams at any time?

Good cash flow projection is all about gaining the right kind of knowledge and using the right cash flow tools as well as online financial planning tools. Join the Financial Story Plan Community to get a firm grip on your cash flow planning.

Sign up for your  FREE trial to Numbers Knowhow, the revolutionary cashflow software designed to empower you with the numbers you need to transform your business. With Numbers Knowhow, you’ll have access to powerful tools and features that will unlock a world of financial understanding and growth.