Cashflow and sales forecasts

• Cashflow forecast = predicting the future flow of cash in to and out of a business' bank account
• uses of cashflow forecast = planning , budgeting , raising finance , monitoring performance
• limitations of cashflow forecast = not always accurate, not always reliable
• Sales forecast = estimate of future sales based on past sales and current sales trends
• Factors affecting sales forecasts = consumer trends, seasonal factors, competitor activity, economic factors
• Advantages of cashflow forecasting:

  • Cash flow forecasts can support an application for a loan and are an integral part of the business plan
  • They can help identify where the business may experience cash shortfalls or cash surpluses so that plans can be made to manage these periods
  • Cash flow forecasts aid planning and help a business avoid costly mistakes
• Disadvantages of cashflow forecasting:

  • Forecasts are usually based on estimates and in reality inflows and outflows may differ significantly from the estimates
  • Cash flow forecasts require appropriate skills, insight, research and time to prepare and update adequately
  • External factors that can impact inflows and outflows may not be reflected in the cash flow forecast
• Difficulties of sales forecasting:

  • Effective sales forecasting requires skill, time and the accurate use of timely data
  • The future seldom repeats the occurrences of the past
  • There is a significant amount of data available for businesses to consider when constructing sales forecasts