Cash Flow

“Cash is like blood, if you don’t have it you’re dead” Lindsay Fox

Cash is the lifeblood of every company. Reported profits notwithstanding, the real financial viability of a company lies in how it manages cash to meet its strategic objectives. Profitable companies can still face cash crisis.

Cash flow forecasting is imperative to meeting corporate objectives in a proactive, rather than reactive way. Forecasting is always a challenge and the uncertainty of events is often a deterrent to even attempting to forecast with any accuracy. It is important to distinguish between budgeting and forecasting. A budget is set annually on the basis of where a company would like to be and is set with the planned events and activities required to achieve those targets. A forecast is based on actual events, without intervention, and should have real cash movements factored into the process.

Accurate cash flow forecasting can become a key tool to support the operational and strategic objectives of any business. When undertaken with discipline, cash flow forecasts will increase profitability, provide information to support acquisition opportunities and even improve customer relations. More importantly, a cash flow forecast provides early warning signs to potential cash flow crisis.

Source: In The Black July 2006 (CPA Australia)

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