Cash flow statement is a useful tool to determine a company’s capability to generate money and its overall performance. We need to predict the cash flow statement so that the executive team could determine the success of the strategies. Hence, it would be best if you prevented the mistakes below when forecasting cash flow (Also see Difference Between Cash Accounting and Accrual Accounting) for your company.
Changes in Accounts Receivables and Payable
Companies ought to set ideal receivables and payables through their financial plan, then forecast these accounts according to the plan. The common error made by most companies is to grow their accounts payables and accounts receivables (Also see Possible Ways For Receivables Management). As a company owner, you take control of your company policies. Thus, you should set the outstanding level of days’ sales and stick to your choice.
Tax Liabilities Triggers Variability in Forecasting Cash Flow
Your company probably does not keep up with every modification in tax, and this is the factor you have to engage tax services in Malaysia from a tax consultant (Also see Affordable Solutions Offered to Business by Accounting Firms). To prevent problems that related to taxes, consult your company’s accountants before the yearly tax cycle starts. As a result, you could clear tax liabilities early and predict your cash flow precisely.
Report Cash Flow from Financing and Investing Activities
You have to understand the financial reporting requirements that govern all companies in Malaysia when preparing reports of cash flow from financing and investing activities. Hence, if you do not comprehend such requirements, it can be disastrous if the cash flow is used in some financial ratio analysis.
Keep in mind that forecasting cash flow from financing and investing activities are hard. Hence, you have to set policies and have a tactical plan for disposal and acquisition of non-current assets along with other financial investments that are not in the cash equivalents.
The Income Line
The cash flow statement is built on the foundation of earnings in the Profit and Loss, from the business’s operations. This indicates that errors in earnings forecast have a substantial impact on the company cash flow.
A typical mistake in forecasting company earnings is to examine development with your eyes. For instance, “My company grew 20% last year; for this year, it should grow by 25%.” This assumption is absolutely wrong; you need more than words to make possible cash flow prediction. Therefore, to improve the accuracy of the forecast, you could consider outsourcing accounting firm in Johor Bahru.