Which is a primary purpose of preparing a cash flow forecast?

Preparing a cash flow forecast is fundamentally aimed at predicting the inflows and outflows of cash over a specific period. This process is crucial for any business, as it helps in identifying periods when cash may be in short supply. The primary purpose of avoiding cash deficits means ensuring that the business has enough liquidity to meet its obligations, such as paying suppliers, employees, and other operating costs. By anticipating cash shortfalls in advance, businesses can take proactive measures to either adjust spending, arrange for financing, or increase revenue, all of which are essential for maintaining financial health.

While the other options touch on aspects of financial management, they do not encapsulate the core objective of a cash flow forecast as effectively. Raising profits refers to the broad goal of increasing income, but the forecast is more about managing existing cash levels rather than directly influencing profits. Managing debts involves control over existing liabilities but is more a result of proper cash management rather than a direct purpose of the forecast. Lastly, tracking expenses is only one component of cash flow management; cash flow forecasting encompasses both income and expenses to provide a holistic view of cash management. Thus, avoiding cash deficits stands out as the primary purpose of this important financial tool.