Five Reasons Why Cash Flow Forecasting Is The Key to SMB Success

1. Five Reasons Why Cash Flow Forecasting Is The Key to SMB Success Many small and medium-sized businesses (SMBs) often find it difficult to manage cash flow. This is because they face a lot of challenges such as unpredictable sales, lack of customer credit lines, and the need for constant inventory turnover. So how exactly do you deal with SMB cash flow issues? Cash flow forecasting is an effective solution especially when you take into account it’s five key benefits: improved cash position, improved ROI, improved customer satisfaction, improved profits and reduced risk. Now that you know what it’s all about, here are specific steps on how to forecast your cash flow.

2. Forecasting your cash flow Cash flow forecasting is a crucial step for any business. When you forecast your cash flow, you anticipate future cash needs and set up a plan to avoid cash constraints. You can forecast your cash flow by using the top five benefits of cash flow forecasting: improved cash position, improved ROI, improved customer satisfaction, improved profits and reduced risk. First on the list of benefits is improved cash position or liquidity. Cash flow forecasting helps you know how much money you need at any given time so that you can take on necessary loans and manage your finances more efficiently. Next up on the list of benefits is improved ROI or return on investment. Cash flow forecasting helps you forecast your monthly expenses so that you can allocate your resources better and invest at opportune times according to your company’s needs. Improved customer satisfaction is another benefit as it helps SMBs identify new opportunities to satisfy their customers’ needs without them having to invest too much money upfront. Next on the list of benefits is increased profits – this means that SMBs will be able to make more profit because they have a

3. better understanding of their current financial status and can see where they might need some help with their finances in order to make a profit. Finally, reduced risk rounds out this list of benefits as it helps SMB leaders reduce the risks they face from unexpected expenses such as costly repairs needed for machinery or natural disasters like hurricanes or earthquakes that could put a halt on operations if unforeseen circumstances arise. Identifying the key benefits of cash flow forecasting 1. Improved cash position: Cash flow forecasting helps you manage cash flow, which is especially important for SMB owners. A lot of companies find it difficult to manage their cash flow because they face unpredictable sales, lack of customer credit lines, and the need for constant inventory turnover. It’s not uncommon for businesses to end up with a surplus when they're in the middle of a slow season or have too much inventory on-hand when business picks up. 2. Improved ROI: Forecasting your cash flow can be especially helpful in maintaining your company’s profitability. When you plan ahead, you can take steps to avoid incurring unnecessary expenses that could otherwise affect your bottom line since there are ways to reduce costs before they become excessive or until you experience an economic downturn. For instance, by forecasting your cash flow in advance, you'll be able to assess expenditures at the beginning of the year so that you don't spend more than necessary.

4. 3. Improved customer satisfaction: When it comes to managing customer satisfaction, forecasting your cash flow is vital because it allows you to anticipate how much money will be available for projects or purchases that are important to your customers or vendors. This ensures that all projects are completed on time and without delays so that your customers are satisfied with the service they receive from you and vice versa. 4. Increased profits: Forecasting finances will allow you to better understand how much money is coming in and going out so that if there's excess revenue How to forecast your cash flow The forecasting process is straightforward. Firstly, you need to forecast your cash flow for the next 12 months. Identify where your cash will come from and where it will go. Next, calculate the total amount of money that you will need in a year’s time. Then identify the most appropriate sources of funding for each area of expenditure and determine if there are any areas which have a shortfall. To address these shortfalls, either increase your revenue or reduce expenditures in other areas. Most importantly, this process requires a lot of commitment. You need to be consistent with your cash flow forecasts so they can help you keep on track with your SMB's financial goals. You also need to be realistic with both what you forecast and how much money you think you will need in a year’s time as these numbers must add up when it comes to forecasting. Forecasting for multiple scenarios The first thing you need to do is prepare a cash flow forecast for multiple scenarios. This will give you the best idea of what could happen in your business and how prepared you are. Then, analyze these different scenarios to determine which one is the most likely to happen. For example, if there’s a high chance your company will experience an increase in sales, you can allot funds for that. But if there’s a low chance of increased

5. sales, you might want to save some of those funds so that your company does not have a negative balance on its credit line. Conclusion Forecasting your cash flow is essential for any small business owner. By forecasting your cash flow, you can identify the key opportunities for growth, how to sustain your business, and the best time to take risks. You can’t grow or sustain your business without forecasting your cash flow.