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Cash flow forecasting is the process of projecting the flow of cash in and out of your company to and from all sources for a certain period of time with specific intervals. The goal of cash flow forecasting is to help business owners understand where their money comes from and where it goes so they can optimize cash flow and maximize profitability.

Purpose It Serves

  • Invariably MSME does not take cash flow projection seriously. This results in a reactive approach to day-to-day cash flow management.
  • Also, no serious thought process applied on systematic receivables follow-up. This results in ad-hoc borrowing from whatever source possible resulting higher cost of finance and hence reduced profitability.
  • This also helps in allocating available resources by prioritizing the needs of the entity and manage the entity much better.

Process Involved

  • Monthly cash flow projection and yearly cash flow projections are done to have both short term and medium-term view of the cash flow situation of the entity.
  • To prepare monthly cash flow a deep look at the receivables and payables of the entity are done to make predictive cash inflow and outflow planning in the most scientific manner.
  • To prepare yearly cash flow, the sales projections are done based on the projected order book of the entity and also the supplier payments are also projected based on purchasing requirement. Any requirement of asset purchase, admin expenses also considered.

Expected Outcomes

SME Advisors will assist to build a realistic cash flow projection and thus enable proper planning

  • Cash flows are usually prepared as monthly and yearly basis.
  • Monthly cash flow helps in rationing the available resources in the most effective manner.
  • Yearly cash flow helps in making long term strategy in taking planned step if finance is to be sourced through borrowing.
  • Whenever the cash flow projection indicate negative cash flow during the period of projection, an informed decision can be taken to postpone certain expense or resort to planned borrowing could be predicted in the most effective manner to avoid any knee-jerk reaction.

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