In reality the predictions may not be true, This means that further down the line, the forecast may not be as accurate as originally thought when it was drawn up The main objective for the newly established businesses will be to survive as a business. Taking aside the short or long term success, surviving will be the main priority. Along with this, managing cash is also important. The cash flow forecast will enable the business owner to see how the cash is managed and Whether an overdraft from the bank is needed and if an overdraft facility s needed.
It will also highlight any immediate problems which will have to be sorted out. Another problem is that it doesn’t tell you anything about profitability and focuses purely on cash so you don’t really know a long term target. To overcome this I would suggest to draw up a Break-even plan as this focuses on sales and when losses turns into profit. This accompanied by a cash flow forecast would ensure an overall management and understanding of where the money coming in and out of the business is coming and going and in what quantity.
To accompany these two documents, a business plan may be useful if the business owner was to go to a bank or potential investor, In conclusion, a cash flow forecast is a useful document as it shows where the expenditure for day to day expenses are going and where they are coming from. If one is accompanied by a break even plan (highlighting sales, profits and costs) and a business plan, there is an overall cash, cost and profit overview which can be managed. To What Extent Would Drawing Up a Cash Flow Forecast Increase the Chances of This Business Being Successful?