Master Cash Flow Forecasting for Business Success

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Master Cash Flow Forecasting for Business Success
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Understanding Cash Flow Forecasting
Understanding projected cash flows, or cash flow
forecasting, is an important part of financial
planning. It consists of creating a cash flow
analysis that includes both expense forecasting
and revenue forecasting. Cash flow management
isnt just an academic exerciseit helps you
avoid unexpected cash shortages, ensuring you
have adequate business liquidity planning. There
are three key components of cash flow forecasting
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• Cash Inflows How much money is flowing into
  your business? This may include revenues from the
  sales of goods and services, interest income,
  investor contributions, and lender proceeds.
• Cash Outflows The money that flows out of a
  business may include ordinary operating expenses,
  real estate costs, salaries and wages, tax and
  debt liabilities, and any other recurring or
  one-time costs.

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Gathering the Right Data
The key to building an effective financial
forecast model is to start with the right
information. If an approved budget has already
been created, thats a great place to start. The
annual budget that you create at the start of
your fiscal year will show expected revenues and
expenses. As the year progresses, you can compare
your budget with actual sales figures so you can
see how income and expenses stack up against what
you budgeted. You should then use cash management
techniques to update your projections for the
rest of the year based on current data.
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Business needs

• Aside from considering the expected revenues and
  expenses in upcoming periods, comprehensive
  financial planning should also take into
  consideration future business needs. Some
  questions to discuss with the finance and
  operations teams would be
• What shape are fixed assets in? Will there be a
  need for capital improvements or replacements to
  furniture, fixtures, buildings, or land?

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Tools and Software for Cash Flow Forecasting
Even with all of the robust cloud-based
accounting platforms and financial planning
software on the market, many finance teams are
still tracking expenses, budgets, and cash
projections using a blend of manual calculations
and electronic spreadsheets, like Excel. There is
nothing wrong with this approach, especially for
new business owners, independent contractors, and
very small organizations with limited sources of
revenue. However, growing and established
organizations can manage cash flows more
efficiently with financial dashboard tools and
forecasting programs.
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Common Pitfalls in Cash Flow Forecasting

• Just like any other financial planning process,
  there are several pitfalls to avoid when
  analyzing cash. Some common pitfalls to be aware
  of include
• Inflating revenues Inflated revenues in a cash
  flow projection occur when business owners are
  too optimistic about future sales or revenues.
  All inflow estimates should be based on realistic
  or historical data. It is best to be conservative
  when predicting income.

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• Neglecting traffic fluctuations - Every business
  is different, and most have a busy season. It
  is important to remember industry trends. For
  example, swimming pool installation companies
  should not forecast the same revenues and
  expenses in winter as they do in summer.
• Not considering external factors There are
  external factors, like inflation, regulatory
  changes, political instability, and natural
  disasters, that may impact business. While its
  impossible to accurately predict these factors,
  building a contingency plan is an important part
  of forecasting.

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Why Choose Biz2Credit?

• Trusted partner for franchise funding
• Biz2Credit was founded in 2007 and has provided
  more than 10 billion in loans.
• Dedicated support team
• Tailored financing solutions

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