Fundamentally, there are two steps that every business owner should take.
Firstly understand the difference between profit and cash flow and secondly prepare an income and expense budget and then extend it to take into account other items that influence cash flow.
Let’s talk about cash flow forecasting
Cash flow forecasting is a financial tool that allows you to predict the cash inflows and cash outflows of a business over a period of time. It identifies any potential cash shortages that may arise due to purchasing large capital items, such as plant and equipment, substantial increases in accounts receivable or payable that effect your cash balance but not your profit and loss.
A cash flow budget allows you to take timely action, such as financing capital expenses rather than paying cash or making efforts to reduce your accounts receivable days to name just two.
