Planning and forecasting of working capital

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, “They 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,” (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.