Five Top Reasons to Forecast Your Cash Flow | Modern restaurant management
Many overwhelmed small business owners are tired of cash flow analysis. “Analysis” of any kind sounds difficult, and who has the time or energy for future projections? More importantly, why bother?
Keep in mind that poor cash flow is the number one cause of small business failure. A staggering 82 percent of businesses fail because of cash flow problems. Are you convinced that you don’t have to worry because your restaurant is profitable? Think again Profitable companies keep failing for the simple reason that they run out of money.
Forecasting your cash flow can help you plan for the future, avoid unexpected defaults, and even qualify for a small business loan.
Aside from keeping your doors open, forecasting your cash flow can help you make smarter business decisions. A little planning goes a long way, and it doesn’t have to be difficult.
Today, intuitive online tools can do the hard work for you, automatically generating cash flow projections based on your past transactions and financial history. No spreadsheets required.
There are tons of benefits to forecasting your cash flow, from avoiding downturns to planning growth and expansion. Consider these five ways cash flow forecasting can improve your business.
1. Avoid shortages
Unexpected outages can be crippling and it can take months (if not more) to recover. Negative cash flow can creep in on you if you don’t consistently track incoming and outgoing payments in your business. Fortunately, shortfalls can often be avoided with a little foresight.
Forecasting your cash flow will help you identify and plan for market fluctuations, seasonal fluctuations, and other business patterns that can result in unpredictable cash flows. Forecasts can even help you visualize cash flow trends using automatically generated charts and graphs.
2. Optimize the timing of accounts payable and accounts receivable
On a more detailed level, many preventable cash flow problems are often a simple matter of timing. A significant delay between invoicing your customers or shipping products and paying can put an unnecessary strain on your cash flow.
Cash flow projections based on your financial history can help you predict when you will be paid for your services or products. In this way, you can stagger outgoing payments to your suppliers accordingly or adjust them in some other way – before you get into the uncomfortable position of not being able to pay your suppliers or, even worse, your employees, in the event of a minus.
3. Prove that you can repay the loan you requested
When you apply for a small business loan, lenders will examine your cash flow history to answer one key question: Can this borrower repay the loan they requested?
Applying for any loan amount without showing your repayment schedule is a great way to land on the rejection pile. This is especially true if your current cash flow doesn’t clearly cover all of your regular business expenses – plus your loan payment.
When you find yourself in this situation, cash flow projections can help strengthen your case by showing the lender exactly how you plan to use their funds to get to a place where you can easily make loan payments. This type of forecast allows you to pass a roadmap that can instill the confidence in a lender that they need to approve your loan.
4. Anticipate the impact of upcoming changes
Is your company planning to purchase new equipment? Introducing a new product? With cash flow forecasting, you can get a complete picture of the ripple effects these types of changes are having on your cash flow.
When your finances are synchronized with an online cash flow management tool, cash flow projections are automatically made based on future bills, invoices due, and payrolls. You can then create “what-if” scenarios, such as: B. buying new equipment. The forecast shows you how the cost will affect your bottom line, along with the potential increase in sales that the new machine will generate.
5. Plan for future growth
Likewise, cash flow forecasts can help you plan future growth and expansion. Whether you need to add new employees to your team and factor in increased labor costs or ramp up production to keep pace with increasing sales, future projections will help you see exactly where you are going – and how you will get there.
Forecasting is also a great goal setting tool that you can use to plan the financial steps your business will need to take to meet your goal. Cash flow forecasts and the insights they can provide your business have power. Fortunately, this competitive advantage comes with little effort when you leave the analysis to today’s sophisticated online tools.