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Cash Flow Forecasting and its Importance for Businesses

Cotents from Dialog Axiata Sri Lanka


  • Cash flow forecasting is a very important and useful  tool for small and medium scale businessmen
  • In many instances, SMEs encounter problems in business affairs as they are unable to bridge day to day financial gaps in businesses. This is a common scenario.
  • Cash flow forecast occupies an important place amongst many financial reports prepared for businesses.
  • This can be prepared daily, weekly, monthly or annually. However cash flow forecast prepared on daily basis is practically more important for small and medium scale businesses.
  • When a daily cash flow forecast is prepared, the ways from which money comes in and goes out is clearly shown on daily basis in the particular month. This understanding is very much important for a businessman to take decisions.
  • It is essential to apply the knowledge and the experience of previous months to prepare daily cash flow statement.
  • Amounts forecasted from cash sales should be shown with the accurate expected dates under “cash inflow”.
  • If there will be credit sales, expected cash receipts from such sales should be stated against most probable dates of cash settlement under “cash inflows”.
  • The pattern of cash inflow should be considered when the decisions pertaining to purchasing of stocks are taken.
  • It is a practice to issue post dated cheques to the suppliers for stock purchases. Businessmen face many problems when such cheques are presented to the bank by the suppliers for realization as such cheques have been issued without a proper idea on cash availability on the date of presentation. However the cash flow forecast provides a solution for this issue.
  • Possibility of getting the number of returned cheques minimized is a special benefit of cash flow forecast application.
  • Monthly expenses can be planned according to the cash inflow pattern. In other words, expenditure items can be prioritized. Payments of bills which can be deferred can be planned for the days with sufficient cash inflow.
  • It is essential to purchase stocks at the right time in right quantities. Cash flow forecast facilitates the management of finances to achieve the said purchasing requirement.
  • It is a practical situation that many small and medium scale entrepreneurs (SMEs) draw cash from the business carelessly to meet their personal and family expenses. Cash flow forecast helps the SME to take accurate decision in this regard because daily cash flow forecast warns whether it is advisable or not to draw money from the business at the relevant occasion.
  • Since daily net cash balance is known, cash withdrawals for personal use by the businessman are regulated. This minimizes the potential cash deficiencies in the business.
  • This can be identified as a  guiding tool to plan a methodical saving scheme.
  • Since financial deficiencies can be identified in advance, sound strategies could be implemented to arrest such situations.
  • Further, short term investments can be planned for situations where excess money is available.
  • While cash flow forecast facilitates a systematic circulation of cash in the business, it helps the businessman to manage the business without unnecessary risks or mental stress.

© Dialog Axiata PLC - Sri Lanka

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  • Currently 5.0/5 Stars.
Don Mahaliyanage  |  March 07, 2017
good information
  • Currently 5.0/5 Stars.
chinthaka prasanne  |  February 25, 2013
Impotent article for small medium traders
  • Currently 4.0/5 Stars.
Sivakumar Nallathamby  |  November 10, 2011
Usefull information for a new business.