Please respond to the following discussion question. Your response should fully address all elements of the question and be a minimum of 200 to 300 words long. Assume that you have an existing small business and you want to improve its financial performance. Relevant financial information is defined as “the predicted future costs and revenues that will differ among the alternatives”. What financial information do you believe is most relevant to analyze and understand? Why?

The concept of Cash Flow Forecasting

Cash flow forecasting is an approximation of the entire amount of cash one will expect to stream in and out of business and incorporate all the expected income together with expenses to be covered in the following year. This principle has a benefit of making cash management more effective through predicting the surpluses or shortage of cash (Pae & Yoon, 2012). This will enable an individual to come up with a more detailed decision around tax, current tool purchases or even securing a small business loan. Cash flow forecasting can still be used to check the likely effect of a potential business modification or decision. The cash flow forecast can be grouped into two sections: near-term cash flows that are highly predictable and the medium-term cash flows that are effectively centered on revenues that have not yet occurred and supplier invoices that have not yet arrived.

Reference

Pae, J., & Yoon, S. S. (2012). Determinants of analysts’ cash flow forecast accuracy. Journal of Accounting, Auditing & Finance, 27(1), 123-144.