As much as it seems to make perfect sense to have a good estimate of your future cash outflows and inflows, many companies never get around to doing it. This is especially true in small and mid-sized businesses. Some of the reasons for the lack of cash flow forecasting models are the following:
The finance staff don’t have time to prepare it
Lack of tools that automate cash flow forecasting
Complexity in creating a good cash flow model
Lack of accuracy in past models leading to reduced appetite to repeat it
Other business tasks or fires keep executives focused in other areas
The financial planning team is exhausted after then annual budget process with no time or motivation to re-forecast the budget during the year
Regardless of the reason for not doing a cash flow forecast, healthy cash flow is the lifeblood of all businesses, so there is no lack of motivation.
Let’s look at the potential benefits of accurate cash flow forecasting.