What is the purpose of a cash flow forecast?

The purpose of a cash flow forecast is centered around predicting future cash inflows and outflows to ensure liquidity. This is critical for any business as it provides insight into the expected cash position over a specific period. By accurately forecasting cash flows, a business can identify when it will have cash available to meet its obligations, make investments, and cover unexpected expenses.

Ultimately, maintaining sufficient liquidity is essential for a company's survival and operational efficiency. Cash flow forecasts help businesses plan for periods of cash shortage and avoid financial distress by ensuring they have enough cash on hand to meet their operational needs and sustain growth. This proactive approach to managing cash flows plays a crucial role in financial planning and decision-making.