What is a cash flow forecast? 

A cash flow forecast indicates the likely future movement of cash in and out of the business. It’s an estimate of the amount of money you expect to flow in (receipts) and out (payments) of your business and includes all your projected income and expenses. A forecast usually covers the next 12 months, however it can also cover a short-term period such as a week or month. The concept of cash flow is quite easy:

Net Cash Position = Receipts – Payments

What can you use it for?

Cash flow forecasts can help predict upcoming cash surpluses or shortages and help you to make the right decisions. It can help in tax preparation, planning new equipment purchases or identifying if you need to secure a small business loan.

By including every case scenario in your cash flow forecast you will see how your business will cope if your business hits tough times or does better than expected. Prior warning allows you to work out solutions to anticipated temporary cash shortfalls or arrange short-term investments for temporary cash flow surpluses.

How to prepare a cash flow forecast

Download the Business Tool: cash flow forecast spreadsheet to guide you through the 3 step process below.

STEP 1: Add cash inflows you expect to collect during the period including customer payments, interest earnings, dividends, sponsorship, grants and so on. Your cash inflows will rely on the method of payment your customers use – cash or credit. Enter the expected cash sales immediately and the credit sales when your customers are likely to pay you. Your credit sales income will depend on your credit management policy.

STEP 2: Add cash outflows from the items listed in your expenses forecast including supplier payments, salaries, loan repayments, credit card payments, and taxes. Consider regular, irregular, and seasonal payments such as rent, repairs and maintenance as required, and inventory purchases.

STEP 3: Simply add in an opening bank account balance, and add the revenue less the expenses for each weekly or monthly period to find out your likely cash position.

NOTE: Be specific about when the money is due for collection and about the month and the amount your expenses falls due

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