Cash flow is the movement of the money in and out of an organisation. It involves the expenditure and income of an organisation.
Cash Flow Forecasting:
In simple words, it is the estimation of the cash flow over a period of time. It is important to do cash flow forecasting in order to ensure that the project has sufficient funds to survive. It gives an estimation that when income and expenditure will take place during the software project’s life cycle. It must be done time to time especially for start-ups and small enterprises. However, if the cash flow of the business is more stable then forecasting cash flow weekly or monthly is enough.
Cash flow is of two types:
- Positive Cash Flow:
If an organisation expects to receive income more than it spends then it is said to have a positive cash flow and the company will never go low on funds for the software project’s completion.
- Negative Cash Flow:
If an organisation expects to receive income less than it spends then it is said to have a negative cash flow and the company will go low on funds for the software project’s completion in future.
Importance of Cash Flow Forecasting:
- It allows the management to plan the expenditures based upon the income in future.
- It helps the organization to analyse its expenditures and incomes.
- Makes sure that the company can afford to pay the employees and suppliers.
- Helps in financial planning.