A cash flow forecast is an estimate of the amount of money expected to flow in and out of the business and includes all the projected income and expenses. A forecast usually covers the next 12 months, however it can also cover a short-term period such as a week or month. Balance sheet gives the view of assets’ mix i.e proportion of fixed and current assets. Moreover it also gives a clear picture of quality of assets mix- percentage of productive and non-productive assets, percentage of highly liquid, relatively liquid and non-liquid current assets. In nut shell we can say that forecasting balance sheet will tell us the strategic plan of the business owners!!!
Businesses need cash flow in order to keep themselves solvent. No cash means bankruptcy. This is why cash flow forecasting is so important! If your business runs out of cash, and it isn’t able to obtain any new finance, it will become insolvent. There is no excuse for businesses not to see a cash flow crisis coming, especially given how easy it can be to create a cash flow forecast.
