Having enough cash to run your business is often the key difference between staying afloat and filing for bankruptcy. Yet, even with accounting solutions becoming more accessible than ever, many small businesses still find it difficult to consistently and accurately forecast their cash flow.
What is cash flow forecasting?
Cash flow forecasting is about predicting when money will move in and out of your bank account in the future. With online banking and app development, it’s now relatively quick and easy to see how much cash you have in the bank today, but if you want to know what your bank balance will be next week, next month, or next quarter, you need either a list of all planned income and expenditure or a model that will help you make a prediction.
There are two different kinds of cash flow forecasting.
The first is the indirect method, which derives a forecast based on financial documents, including your balance sheet, profit and loss, and cash flow statement. The second type is the direct method, which shows you a picture of your cash based on