Create a Cash Flow Forecast

What is a Cash Flow Forecast?

Estimating your future sales and expenses. A cash flow forecast is essential to run your business, this will indicate if you have enough money to run the business, money going in & out your business and when you can expand.

Decide the period you want to plan for

Cash flow planning can range from a few weeks to multiple months. You should plan as far ahead as you accurately can. If you’re a new business, you may not have much data to work with - which means the further out you forecast the less accurate it becomes.

Your cash flow can change, the most accurate cash flows are updated regularly. You can rework your plan accordingly when things change such as when more accurate estimates are received etc.

List incomings

You should list all incomes into the business either on a weekly or monthly basis. The best way to set this out would be on a spreadsheet; one column for each week/month & one column for the type of income.

A good starting point is your sales, add them into the appropriate weekly or monthly column. By looking at previous months you should be able to predict what you should receive in the upcoming months. Make sure you are putting the figures in for when clients are due to pay invoices or bank payments will be cleared to keep it as accurate as possible.

Other non-sales income should be listed to, such as; grants, tax refunds, licence fees or royalties and investments form owners or shareholders.

Finally add all incomings into your account to get your net income.

List outgoings

Make a spreadsheet for all money leaving your account on a weekly/monthly basis such as; salaries, rents, assets, raw materials, bank loans fees & charges, marketing & advertising spends and tax bills.

Finally add all outgoings leaving your account to get your net outgoings.

Work out running cash flow

You must then for each weekly/monthly column subtract your net outgoings from your net income. This will result in a positive cash flow figure (more money incoming than outgoing) or a negative cash flow figure (spending more than you have coming into the business).

We recommend to keep a close eye on this; weekly or monthly depending on your business and take note of a running total. Be careful too many weeks/months of being in a negative cash flow can start to cause problems. You will need to ensure some forward planning to warrant enough working capital (money to meet everyday needs of your business) such as salaries, rent etc. On the flip side, if you have months of positive cash flow this could indicate you have room to expand or invest.

Top tip, use a spreadsheet to keep all the records. Excel is a good spreadsheet to use as you are able to set up formulas so when new figures are added in it will automatically recalculate results.