Suppose you ask a restauranteur or any business owner involved in food and beverage that they think is essential in a business plan. In that case, they will most likely tell you that it is accurate cash flow forecasting. Statement of cash flow is critical to the success of any enterprise, so a precise projection is essential to your company’s operation.
Before you ask your accountant for one, you should understand this. It is an estimate of cash coming into your business and how much you will be spending. The document should contain an itemised projected income and expenses.
The cash flow statement is used in planning and is an integral part of financial management. It is also a tool for monitoring your finances and budgeting your expenses. If you find all of these overwhelming, allow us to break this document for you.
How Is It Created?
You need your accountant to make one for you. As mentioned earlier, she will utilise your cash flow statement to prepare a cash flow forecast. She will be taking out the itemised accounts from the document to make the estimates.
In other words, your accountant will utilise historical data to make the projections. The estimates will help you make better business decisions because you know where you stand.
As mentioned earlier, your accountant will utilise your cash flow statement numbers. She will look at your revenue over the previous periods and use it as a basis for her projection.
You might wonder what will happen if your sales for each period are different. In this situation, the financial analyst will consider factors that affect your revenues, such as marketing campaigns, new product launches and other events.
She will also look at your expenses and check for factors that affect your costs, such as employee salaries, taxes and other internal fees. She will compare the expenditures from the previous period and make adjustments for the upcoming periods.
Some expenses, such as rent and internet usage, are fixed. But some items are variable, such as payroll and utility bills. Like what she did with your previous revenue, your accountant will make these numbers the basis for her cash flow forecast.
Your accountant will then look at the difference between revenue and expenses. She will sum up the numbers to determine if you have been earning money.
Why Is It Important?
The cash flow forecast will help you determine if your business can continue to operate and whether it can sustain your current business plans. The projections will help you set short-term and long-term goals.
If you cannot pay your business debt and bills, you are bound to close your operations. The cash flow forecast will help you determine your business financial position. As mentioned earlier, it will allow you to make better financial decisions.
The cash flow forecast is an important business tool. It will help you determine if your business has enough capital to sustain its operations. But it can only be useful if you understand the numbers.
A business manager who understands the cash flow forecast may use the information to make better business decisions. It will help them boost revenue and reduce costs. With the cash flow forecast, you can better analyze your strengths and weaknesses. It will help you identify the areas where you need to improve.
If you are looking for a Gold Coast accountant to help you create a business plan or interpret the numbers in the cash flow forecast, you should consult The Ecommerce Accountant. We can help you with that while strategising on how to minimise your taxes and maximise your income. Contact us now!