Cash flow forecast software with opening balances is the same as a car with wheels. In other words, a car without wheels isn’t a car and neither is software without an opening balance feature cash flow forecasting software. If you’re a business with accounting periods before the beginning of the cash flow forecast period, you will have opening balances. At the very least you’ll have a starting bank balance to bring forward. But more than likely you will have opening balances of amounts owed to your business by customers and amounts owed by your business to suppliers. Then there’s opening stock, loans and fixed assets and depreciation to consider.
Why a cash flow forecast is important to your bank manager is so they can build trust in you and your business. Being able to produce professional forecast reports, together with being on top of your numbers, will help to earn their trust. Your bank manager needs to see a cash flow forecast in order to approve loan applications. They will use your forecasts in conjunction with your management accounts and historical accounting information to confirm your business is viable and able to comfortably repay the loan. The combination of the forward period reports together with historic data will help to build a picture of credibility.
Cash flow software with depreciation included as a function will do so showing depreciation as a non cash expense. This means that whilst the cash flow software takes account of deprecation, this is not for the purposes of reflecting it in forward period cash flows. But is instead to include the depreciation expense on the forecast profit and loss, the projected balance sheet and the forecast cash flow statement reports instead. Additionally, deprecation is an add back for tax if you intend to add forecast tax payments into your cash flow reports.
A cash flow forecast is an estimate of future monies (or cash) you expect to receive in by your business and pay out from your business. Instead of an historical record of these amounts in your accounts or of looking at the amounts received into or paid out of your bank account on a day-to-day basis, you simply need to look at the same concept, but for forward periods instead. Included in your cash flow forecast are all your itemised projected income and expenses, which is usually forecast ahead for 12 months or more.
Factoring receivables helps businesses to bridge the gap between the timing of the incoming receipt of payment from customers to the timing of the outgoing payment of operational costs and expenses. But to plan for the switch to debt factoring you need to prepare cash flow forecasts beforehand. To do so you need cash flow software with factoring receivables built-in. Or alternatively, you need to be able to create complicated spreadsheets to prepare your own cash flow forecasts.
Just because a company is profitable doesn’t necessarily mean it has cash. Profits need to be converted into cash. Companies need to make sure customer receivables are converted to cash. Stock must be managed and kept to a minimum. Also, close attention needs to be made to any differential between customer receivable credit terms vs major supplier payable credit terms. It’s more likely that a rapidly growing businesses vs a slow growing business will run out of cash, which is termed overtrading. Cash flow and working capital requirements increase as business growth rates increase. This is reflected in having to increase stock or inventory levels and having to hire new people.