By entering known and expected, or anticipated and estimated cash receipts and disbursements by date, you will be generating a cash flow calendar. When you can see how you cash balance rises and falls during the forecast period, you will know when to expect cash surpluses and deficits, and you will be in a better position to make decisions regarding cash management. The idea behind cash management will be to even out cash flows, make the best possible use of existing resources, minimize financing costs, and obtain the best return on cash investments.
Planning for Financing Needs
In this sense, it may be necessary to do a cash flow forecast in two stages. In reality, no operation can continue for any period of time with a negative cash balance. So whenever a deficit appears in the cash flow forecast, it will need to be covered, either with an additional investment of funds or by borrowing.
By knowing about the needs for financing ahead of time, different alternatives can be considered and different sources of financing can be compared, thereby obtaining the most advantageous terms.