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Profit forecasts & cash flows

Two essentials of running any business are ensuring that you make a profit and that you have sufficient cash to settle liabilities as they fall due. Unfortunately, the two do not necessarily follow one from the other.

It is quite possible to be making a healthy profit but, perhaps as a result of failure to collect outstanding debts, to simply run out of cash. Less obvious in the short term is a business that is awash with cash, perhaps as a result of taking deposits in advance or obtaining extended credit from suppliers, but is not actually making a profit. Both of these undesirable scenarios eventually make themselves apparent but often not until it is too late to do anything about it.

Profit and cash flow forecasts enable a business to predict in advance both profitability and the availability of cash but both require detailed input from somebody who knows what they’re doing. In many businesses this will fall to the Finance Director but the majority of our clients rely on us to fulfil that role. After the initial input, we can monitor and update profit and cash flow forecasts on a regular basis, reporting to the business owner so that he has useful, up to date, information readily available to him.

The larger the business, the greater the volume of data available from which to prepare profit and cash flow forecasts. However, even the smallest businesses who lack the detailed data can still benefit in some cases where all the data is pure estimates. Ongoing monitoring will show where the estimates prove to be inaccurate, enabling increased accuracy over the passage of time.