Cashflow Forecasting In Cashflow Management For Long-term And Short-term

By Author: James Keyes
Total Articles: 62
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Cashflow management, whether you’re a large business, small business, partnership or even an individual family, is an important element in managing your day-to-day needs and planning for your future. The amount of assets and liabilities will vary but the principle remains the same. If you don’t manage your cashflow in regard to your expenses, you’re going to struggle.

Can I forecast what my needs are going to be 5 years from now? Am I prepared if I have an emergency expense 3 months from now? When should I invest in new equipment? What percentage of my assets can be attributed to labour costs or insurance? Each of these questions can be answered if you have a handle on your expected cashflow for a specific period.

There has to be a balance of short-term and long-term. Each year, successful businesses will set a budget. This budget is simply a forecast of the expected cashflow for that specific year balanced against the expected expenses for that same time period. Daily sales, donations, return on investments, sale of outdated equipment or any other source of money entering the business will determine the ...
... cashflow available. Labour costs, insurance, depreciation, purchase of new equipment, advertising and product research would be important factors in determining the expenses.

Each business will have peak periods and slow periods. Forecasting these timeframes will be necessary in determining hiring practices such as whether to hire temporary help or full-time, when to lay employees off or invoke hiring freezes, when to perform preventive maintenance on equipment and when to allow vacations. If expected cashflow is going to decrease, controlling labour costs and utilities is essential to remaining viable.

Sports organizations would provide a great example of how to manage long-term cashflow. What growth or decline have we seen in season ticket sales over the past number of years? What contracts are coming due and will have to be renegotiated next year, two years from now or five years from now? Who are we going to resign and what are we willing to spend to keep them? When does our stadium or arena lease and what will it cost to renew the agreement? These are all examples of factors that will determine cashflow long-term.

As stated, any viable business has to have a plan in place to manage cashflow and forecast for future needs, whether short or long term.

Call Omega Partners Sydney Accountants on (02) 8211 0429 to see how we can assist your business with its cashflow forecasting needs.