Cashflow forecasting involves predicting the inflow and outflow of cash within a business over a specific period. It helps businesses anticipate their financial needs, manage liquidity, and make informed decisions about spending, borrowing, and investing. Accurate forecasting can prevent cash shortages and support strategic planning.

Cashflow forecasting focuses on the actual movement of money in and out of a business, while profit forecasting (or income forecasting) predicts the profitability of a business based on projected revenues and expenses. Cashflow forecasting is essential because a profitable business can still face cashflow problems if cash isn’t managed effectively.

Cashflow projections provide valuable insights that guide strategic decisions. They help businesses plan for expansions, equipment purchases, or staffing changes. They also aid in managing working capital, optimising inventory levels, negotiating with suppliers or creditors, and determining the feasibility of new projects.

Cashflow projections should be regularly reviewed and updated, especially when there are significant changes in the business environment, such as shifts in customer demand, changes in interest rates, or unexpected events. Monthly or quarterly updates are common, but the frequency may vary based on the business’s needs.