Cashflow forecasts are one of the most important documents for small businesses. It is basically a projection of what the company will earn in a certain period of time – usually in the next 60 days. Cashflow forecasts allow you to forecast troughs and peaks in your cash balance. It enables you to properly plan how much and how often to borrow from your bank and how much funds you are going to have on hand at a certain point in time. Most financial institutions require cashflow forecasts prior to even considering a commercial loan. This may not be necessarily true in Singapore, but it is important to do one.

There are many factors that affect cash flows, the most important of which is the overall state of the economy such as during the past 2 years of covid-19 pandemic where most businesses were affected by the lock downs. In case of small businesses, a cashflow forecast is necessary before deciding what to do with the business. If the forecasts are far from realistic, it may mean that the small businesses may not be able to cope up with the competition and meet their goals.

Cashflow forecasts are also necessary when planning investment, since this can significantly influence the return you get from your investment. For example, a large capital investment can lead to poor cash inflows if the foreign currency value of your investment moves against your equity. In this case, you would need to reconsider whether you are making the right decisions about capital investments. Good cashflow forecasts help you decide where to invest your money and therefore, improve your profitability.

Most small businesses are not equipped with the needed technology and skills to create an effective cashflow forecast. A small business owner should therefore be prepared to hire someone who has these skills and knowledge. Hiring an expert with excellent knowledge in this field may mean the difference between success and failure. Do contact us at ET Management for help in doing up probably your first cashflow forecast statement.