Avoid financial risks with a forecasting strategy

Almost 30% of new businesses fail due to a cash crisis, according to data form the research firm CB Insights.  The lack of liquid assets is one of the main ‘killers’ of businesses.  Not knowing the company’s cash flow can jeopardize its survival. The way to avoid these financial risks is through forecasting.

As the finance director or person in charge of this department, you must make difficult financial decisions almost daily.  The level of risk and responsibility may be an enormous burden, but with a cashflow forecasting solution, work can be lightened.

What is it and how can it help your business?

forcast para evitar riesgos financierosA cash flow forecast is a document that provides an estimate of the amount of money coming in and going out of the business in a given period. In general, these forecasts cover a period of 12 months, although it is possible to use it for shorter periods, either 1 month or even 1 week.

This document includes projected revenues and expenses, thus providing a clear assessment of future cash flow. Its purpose is to improve the company’s business strategy by providing a cash flow projection so that, based on this information, you can make important decisions.

Remember failure to make a forecast can jeopardize the business. By not planning your cash flow, you may not have enough liquidity at the end of the month to pay your suppliers and employees.

Advantages of forecasting

Cash flow forecasting will avoid financial risks to the business because it will let you know what funds are needed for the next three months, for example. This will give you the necessary time to organize finances.  The forecast can also tell you whether you will have excess cash at the end of the year to make investments or pay off debts in full.

Forcast para negociosOn the other hand, having a cash flow projection of the business will tell you whether you need to take out a loan and what decisions to make to grow the business. In general, this document can tell you how your business might perform in a variety of different conditions, for example, in times of recession or prosperity.

Having this knowledge can bring you peace of mind that you can handle any contingency in your company. If you want to forecast in a simple and accurate way, an alternative is to implement Cash Flow Planning, a solution from Prophix.

With this tool, you can know exactly where your business stands and accurately project and monitor cash flow. You will be able to create accurate balance sheets and always have detailed financial information at hand. If you want to implement this solution, Fusionworks can help you, contact us!

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