Cash flow forecasting for business is probably one of the most important planning reports a business owner can do and preparing a business cash flow forecast should probably come before a profit and loss statement.
Whilst making a profit is a vital indicator of how well a business is doing or not, its monthly cash flow is a key to its overall success or failure. On paper a business might show fantastic profits, but if that same business fails to collect what it is due from its’ customers it will not be in a position to pay any amounts that fall due.
So to use some form of cash flow forecast template or forecast spreadsheet to prepare cash flow forecasts in order to plan when the inflows and outflows of money happen is a key business planning tool. Microsoft Excel seems to be the most popular spreadsheet software on the market although Lotus 123 and Open Office Calc are also just as good. However, there are also a number of cash flow forecast software products available on the market which is a better option to avoid spending unnecessary time working out complex formulars etc.
I think that most businesses these days accept they should use accounting software to keep the accounts of a business up-to-date, but I am not sure whether they feel the same when they have to prepare cash flow forecasts. Cash flow forecasting software takes away the hard work and allows the user to concentrate on putting the figures together, rather than having to focus on how to work out the interaction between profit and loss versus cashflow.
A basic cash flow forecast should be a representation of when a business is likely to receive money and when that money is likely to be spent. It is important to recognise the difference between what represents profit (Revenue less expenditure) and net cash flow (Cash inflows less cash outflows). All cash flow reports should include a balance sheet to prove that the figures are in fact in balance.
