Benefits of Cash Flow Forecasting During a Pandemic
The current global pandemic has made it incredibly challenging for businesses to maintain their cash flow as it has left many businesses feeling uncertain about their financial futures. The cash flow forecast is the number-one financial planning tool for small businesses during the COVID-19 pandemic.
What is cash flow forecasting?
It provides an estimate of the money flowing into and out of your business during a certain time period. It is designed to determine your company’s future financial position and whether or not you will have enough cash to continue operating.
Why is it important?
As a result of the ongoing global pandemic, it is essential to monitor cash flow as companies are constantly operating with increasingly unknown variables. Cashflow forecasting identifies these variables and the information is used to plan major business decisions.
Companies struggle to navigate the complexities of the current economy amid the COVID-19 shutdown. There is an increased awareness of short-term operations and cash management. It is more important than ever to have a deep understanding of how cash is flowing into and out of the business to help prepare for the future and make better-informed decisions. The forecast can tell organizations whether they have a positive cash flow (more cash is coming into the business than going out) or negative cash flow (more cash is going out than coming into the business).
Benefits of Cashflow Forecasting
- Helps a company manage liquidity, meet financial obligations, prevent funding issues, and improve working capital
- It helps you become proactive in identifying cash shortfalls several weeks in advance
- Gives time to plan for, and deal with the cashflow issues
- It provides for an accurate budget process, so you have a roadmap for the rest of the year
- Focuses on managing the business rather than the unexpected event of cash shortfall
- It provides investors with an opportunity to review the financial health of a company
- Cash flow forecasts help you to see if spending is on target.
- Improves relationship management with suppliers/customers