Influence of Cash Flow Forecasting Practices on the Financial Performance of Three- and Four-Star Hotels in Meru County, Kenya

Financial performance has become a major concern within the hospitality industry because hotels operate in highly dynamic environments characterized by fluctuating customer demand, rising operational costs, liquidity constraints, and increasing competition. Effective cash flow forecasting has increasingly been recognized as an essential working capital management practice because it enables organizations to anticipate cash requirements, coordinate expenditures, minimize liquidity shortages, and improve financial planning. Despite its importance, many three- and four-star hotels continue to experience unstable financial performance arising from weak forecasting systems, delayed financial decisions, and inadequate cash management practices. This study examined the effect of cash flow forecasting practices on the financial performance of three- and four-star hotels in Meru County, Kenya. The study was anchored on Planning and Control Theory and adopted a positivist research philosophy, quantitative research approach, and correlational research design. The target population comprised 120 managerial and finance personnel drawn from eight classified three- and four-star hotels, and a census approach was adopted. Primary data were collected using structured questionnaires, while secondary financial information was obtained from hotel financial records. Data were analyzed using descriptive statistics, Pearson Product Moment Correlation, and simple linear regression analysis. The findings established that cash flow forecasting practices exhibited a positive and statistically significant relationship with financial performance. Regression analysis further demonstrated that cash flow forecasting practices significantly predicted financial performance (β = 0.684, p < 0.05), leading to the rejection of the null hypothesis. The study concluded that effective cash flow forecasting strengthens liquidity planning, improves expenditure coordination, enhances operational efficiency, and promotes sustainable financial performance. The study recommends that hotel management institutionalize structured cash flow forecasting systems, integrate forecasting into budgeting and financial decision-making processes, and adopt digital forecasting technologies to strengthen financial sustainability and organizational resilience.