STUDENT 1: Joshua
What is cash flow forecasts and working capital analyses?
Cash will always be king in this world, and it is the key to whether or not a company goes bankrupt or not. The business world is full of unexpected changes and it can affect the finances, but it is how a company budgets and keeps track of everything that makes them successful. Two ways companies can prepare for differences in finances is cash flow forecasts and working capital analysis. First, cash flow forecasts are ways a company can manage and keep track of the input and output of money over a period of time. Second, working capital analysis is essentially the funds that are solely involved in a company’s operations. It is different than cash flow forecasts because it focuses on the operating cycle of a business.
What sort of difficulty can you imagine the manager of an organization would be in, if the organization did not routinely prepare cash flow forecasts and working capital analyses?
A manager is in charge of the whole show and it is his or her job to make sure finances are taken care of. Both cash flow forecasts and working capital analyses are in a sense both budgets. Without establishing where, when, and what happens to your money, a business will go bankrupt. A smart manager will make sure that their finances are taken care of at the beginning, and it would be smart to develop a routine. According to McCubbrey Business Fundamentals, âThey are easy to prepare and can be quickly done using a spreadsheet program. They can also be prepared manually. What a cash flow forecast does is estimate cash inputs and outputs over a period of time, usually at least 90 days in order to give you assurance that your business will have the cash necessary to meet its obligations to others,â (McCubbrey 2009). This is a perfect example of how to map out what to do as a manager and get a business on the path towards a healthy financial future.
McCubbrey, D. J. (2009). Business fundamentals. Retrieved from http://textbookequity.org/Textbooks/McCubbrey_Busi…
Cash flow forecasting is important to a company, because money is what will keep the business afloat. Managers have to be able to predict future business and expenses. Being able to say the forecast business will be slower this year compared to last year is something that managers will need to be able to have planned out. This forecast allows for things like adding or cutting employee hours or hiring new staff. You canât hire new staff or give current staff more hours if the money isnât going to come in. However, the prediction may not always be spot on, but the person responsible for creating the cash flow forecast is someone who has the experience to analyze and make a prediction. The forecast is based on different variables depending on the business, it could be the time of year, the location, the services offered, and competitors. Anyone can develop a knack for forecasting and analyzing, however it is a skill. I donât think it is something that should make you pull your hair out at the end of the day, but it is important that it is done based on the information given. Someone should not make those predictions regarding the cash, without background knowledge. For example, I know in my current occupation we are super busy during the summer months, but I cannot say whether or not we will see a 5% financial increase compared to last summer.
The terminology is so tricky and confusing, I donât have a natural understanding of the terms, so hopefully my post is headed in the right direction. I am looking for feedback and possibly some helpful tips on how others have learned to decipher the differences.
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