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Cash Flow Forecasting - Why Does it Matter?

First of all, well done. You have seen a blog written about cash flow forecasting and you have chosen to read it! Many will have continued to scroll, and chosen a more exciting, and more magical topic. Many will have underestimated the power that good cash flow management can provide a business - not just in terms of survival as is often warned, but for growth and having the agility to grasp an opportunity when your competitors can’t.

Firstly, you may have read this before (if you have attended any of the BIPC Northamptonshire workshops in the past you will have), but profitable businesses can, and do, go bust!

Good cash flow management involves planning for and controlling the specific times when money enters and leaves your business bank account.

Businesses that are making a profit ‘on paper’ but cannot bring in cash to pay their debts on time could face being put on stop by their suppliers, not paying their staff on time, and ultimately being forced to close.

The other consideration around cash flow is “opportunity cost”. By definition, opportunity cost is a term that refers to the value of what you have to give up in order to choose something else. In other words, spending money on one thing may mean you are unable to buy another.

This is the same for your competitors, and therefore managing your cash flow carefully is a competitive advantage.

Imagine the scenario; What would happen if your supplier ran an unexpected discount promotion on your best selling stock lines at a time when all of your cash was tied up in something else? If your competitors took advantage of the offer could they pass on the discount and steal your customers?

The better way to look at things would be to consider; What would happen if your supplier ran an unexpected discount promotion on your best selling stock lines and all of your competitors cash was tied up in something else? Could having spare cash in the bank allow you to pass on the discount and steal their customers?

Other scenarios include being able to upgrade your equipment/machinery when others can’t, or perhaps being able to move quickly to secure a cash purchase rather than being slowed down by the processes of immediately accessing external finance. “Cash is King” as they say.

Having a strong grip on your businesses cash flow can help your business avoid paying the cost of missed opportunity, and provide the platform for future success.

Find out how the Business & IP Centre Northamptonshire can support your business by visiting our 'Services' page.


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