What is Cash Flow and Cash Flow Forecasting

Cash Flow forecasting is a vital aspect of a business, planning its future cash requirements to avoid a crises of liquidity. Cash Flow forecasting is very important because if a business runs out of cash and is not able to obtain new finance, it will become insolvent. Cash Flow is the life-blood of all business – particularly start-ups and small enterprises. As a result, it is essential that management forecast (predict) what is going to happen to the cash flow situation and therefore make sure that the business has enough to survive. How often management should forecast cash flow is dependent on the financial security of the business. If the business is struggling, or keeping a watchful eye on its finances, the business owner should be forecasting and revising his cash flow on a daily basis. However, if the finances of the business are more stable and “safe” then forecasting should be done on a monthly basis. In the case of a special project, such as a marketing campaign, keeping track of the cash flow is a good idea. The simple record keeping will help the business to determine if the effort is generating revenue at projected levels along the way. At the same time, monitoring where the money is going will help to ensure that the project does not go over the amount that has been set aside for the purpose and can also determine whether to much is allocated to similar projects in the future.


Common methods include:

  • Sales – Sell the receivables to a factor company for instant cash.
  • Inventory – Don’t pay your suppliers for an additional few weeks at period end.
  • Sales Commissions – Management can form a separate (but unrelated) company and act as its agent. The book of business can then be purchased quarterly as an investment.
  • Wages – Remunerate with stock options.
  • Equipment Leases – Buy it.
  • Rent – Buy the property (sale and lease back for example).
  • Research & Development – Wait for the product to be proven by a start-up lab; then buy the lab.
  • Interest – Issue convertible debt where the conversion rate changes with the unpaid interest.
  • Taxes – Buy shelf companies.

For a Cash Flow analysis or Cash Flow projection of your business or project complete the form Below and a consultant will contact you:

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