A cash flow forecast helps to identify potential shortfalls in cash that may hinder your business operation. A cash flow forecast can also identify possible cash surpluses which can be utilised elsewhere in the business.
A cash flow forecast also provides a clear direction to external stakeholders (such as your bank) about where your business is trending on the basis of existing production. It also shows where your business stands with regards to pay-out figures at the date of preparation.
Your cash flow forecast may also be used to determine your overdraft requirement for an up-coming time period and allows for these limits to be set. This helps to ensure you are not holding longer-term borrowings in expensive on-call accounts, therefore reducing interest charges.
A cash flow forecast lets you plan for significant expenditure during the year and lets you know whether these expenses can be funded from cash or if additional borrowings are required.
Ideally speaking, you should complete your initial cash flow forecast prior to the commencement of the year’s trading and then amend it each time there are variable changes (e.g. pay-out, interest rate fluctuations and production increases or decreases). Remember that the cash flow forecast is a fluid document.
Just as it is important  to be ready for possible losses and to take steps to prevent cash flow shortfalls, it is equally important to look forward should there be more profit than you expect and to find meaningful ways to use this for the growth of your business and to maximise your tax position.
We believe that a business cash flow forecast should be completed by the business owner/operator or in conjunction with your accountant.