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Forecasting Cash Flow During Uncertain Times


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In an economy crisis where interest rates and stock indexes move up and down and news about company layoffs are part of daily news headlines, financial clarity does not seem like a bad idea.

A cash flow forecast is a plan that shows how much money a business expects to receive in, and pay out, over a given period of time. It seems logical that all businesses should have a cash flow forecast perfectly embedded in their corporate processes, but how many companies are making that a reality?

Are Companies Doing Cash Flow Forecasting?

As much as it seems to make perfect sense to have a good estimate of your future cash flows, many companies never get around to doing it. This typically happens with small to mid-sized companies.

Regardless of the reason for not doing a cash flow forecast, healthy cash flow is the lifeline of all businesses, so there is no lack of motivation.

Why Do Businesses Project Their Future Cash Flows?

Most company executives know they would sleep better at night if they had a mechanism that fairly accurately could tell them if the liquidity of their business is healthy or unhealthy in the months ahead.

There are many logical reasons why an organization benefits from regular cash flow forecasts. Some are to:

  1. Reduce the risk of insolvency
  2. Move faster on investment opportunities
  3. Satisfy bankers to enable debt financing or other bank-backed financial transactions

Automate Cash Flow Forecasts

As in many other cases, technology can help automate laborious tasks. In the case of cash flow forecasting, there is a cloud software category often referred to as Corporate Performance Management (CPM) solutions that includes vendors such as Solver that specialize in planning, budgeting and forecasting.

Benefits of CPM solutions include scenario forecasting to predict multiple scenarios so companies can plan accordingly. In other cases, CPM solutions provide entire driver-based forecast processes. Driver-based means that the forecast includes assumptions that help automate and simplify creation of sales, payroll, expenses, balance sheet and cash flow forecasts.

Most executives would agree that accurate cash flow forecasts provide many benefits to their businesses. Learn more on how to forecast cash flow during uncertain times in the full article here.

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