How Important Is Cash Flow Forecast?


March 18, 2021

What is a three-way budgeted cash flow forecast? How does it work? 

It is critical now for a lot of people to know where their numbers are going to be. For this year, since February has finished, it should give them a bit of indication as to how their first quarter is going to be like. 

Through the forecast, SimplebackOffice will put together the cash flow report. It is made of different things like ongoing revenue, continuity based or subscription-based.

The company will get an understanding of what the cash flow would look like. Then extrapolating that out through the quarter, or even much less through the rest of the year. Also, it includes framing in variable cashflow or variable sales. 

After everything is gathered and calculated, it will be framed into what the company is targeting. It’s R for the quarter, for the semi-annual basis, and so forth. As a result, it will have that looking forward. 

Once everything is completed in that particular period, it will create an opportunity as a look back of the budget. Moreover, it can be looked at as a percentage of the budget and what has the company actually ended up completing at that point.

Questions Cash Flow Forecast Could Answer

The first question it could be answered is “Did you exceed the budget?” 

For example, a company was supposed to spend $5,300 in advertising. However, they ended up spending $5,710 of that. Because of the cash flow forecast, the company is able to track and measure it.

According to Peter Drucker, you can’t manage what you don’t measure, and it’s critical in knowing the numbers of a business and company. They mostly do not think of this. 

Many companies just task their accounting to handle their cash. They spend on things on a whim or through emotional reasons. That is not an advisable thing when it comes to running a business. 

One great example is that a company can make 300,000 all the way up to making 1.5 to 2 million and beyond. Their accountant does not account for cash flow. They would just log into Wells Fargo, Bank of America, Capital One, or whatever their bank is.

They do not account their budget because they do not have one. A financial statement is really important as much as the projected cash flow forecast. Because of this, a company can safely tell their budget for the next 60-90 days. 

It would take that long because in general, everything needs 90 days from anything working from complete scratch right now to seeing something materialized down the road.

Another question it answers is the sales cycle. Cash Flow forecast can tell how long it takes for sales to convert into an actual deliverable and collected cash sale. 

Net Profit Percentage

On a similar note, knowing and understanding a company’s net profit percentages and managing it relentlessly on a regular basis every month is very important. 

Moreover, knowing where the company profits are should be built into the cash flow forecast. It goes along with the expenses and so forth. Whether you are looking at a number, it might be 19% net 27%, 73%, or 85% net profit, it is better to know that number. 

Contact Us Now

It’s absolutely critical to evaluate, and know your numbers. Whether it is about getting a cashflow forecast in place, working on a budget, learning about everything in your business is vital. 

And if you have any questions, feel free to contact us! You may also message us directly. 


Chief Experience Officer

“Know Your Numbers, Know Your Business”