Business – 5.3 Forecasting and managing cash flows – Cash flow forecasts | e-Consult

Limitations of cash flow forecasts include:

• Reliance on assumptions about sales, collection periods and payment terms, which may be inaccurate.
• Difficulty in predicting unexpected events such as economic shocks, supplier disruptions or sudden changes in customer behaviour.
• Often based on historical data that may not reflect future market conditions.

To improve reliability, businesses can:

1. Use scenario planning – prepare best‑case, most‑likely and worst‑case forecasts to capture a range of possible outcomes.
2. Regularly update the forecast with actual cash flow data and revise assumptions, ensuring the forecast remains aligned with real‑time performance.

Implementing these methods helps to reduce uncertainty and makes the forecast a more robust tool for decision‑making.