One of the most common questions accountants receive from their clients is “how do I prepare a cash flow forecast”. Cash flow planning is highly important for any business that wants to achieve long term success.

Cash flow planning is crucial because as a business owner you need cash in the bank to pay your bills. Staying on top of your cash flow will help you predict if you’re going to run out of money and when, this way you can prepare ahead of time. Cashflow planning might also show you that you need to cut overheads, find new investment, or spend time generating sales.

Furthermore, your business might be doing well, and you might be considering expanding into new markets, investing in new products, taking on bigger premises, or recruiting new staff. Having accurate cash flow projections will help you see if you can afford to take the leap.

Here are some tips on how to undertake a cashflow forecast

Decide How Far Ahead You Want To Plan For

Cash flow planning can cover anything from a few weeks to many months. It is highly advised that you prepare as far ahead as you can accurately predict. If your business is well-established, you might have a predictable sales pipeline and data from previous years. If you operate a new business, you might not have a huge amount of data so the further out you go, the less accurate your predictions will ultimately become.

Don’t worry too much if you can’t plan far ahead. Your cash flow forecast can change over time. In fact, it should. As things change, or you get more exact estimates, you can update your plan.

List All of Your Businesses Income

For each week or month in your cash flow forecast, list all the cash you’ve got coming in. Have one column for each week or month, and one row for each type of income.

Start with your sales, adding them to the appropriate week or month. You might be able to predict this from previous years’ figures, if you have them. Remember though, this is about when the cash is actually in your bank account. Put the figures in for when you know clients will pay invoices, or bank payments will clear.

Also remember to include all non-sales income, for example:

  • Tax refunds
  • Grants
  • Investment from shareholders or owners
  • Royalties or licence fees

When you add up the total for each column you will get your net income.

List All Of Your Expenses That Are Outgoing

Now that you are aware of what’s what type of revenue streams are coming in, you need to figure out what you’ve got going out. For each week or month, make a list of all the money you’ll be spending, for example:

  • Rent
  • Salaries
  • Raw material
  • Assets
  • Bank loans, fees and charges
  • Marketing and advertising spend
  • Tax bills

Once you’ve listed everything you spend, add up the total for each column to find out your net outgoings.

Figure Out Your Running Cash Flow

For every week or month column, take away your net outgoings from your net income. That will give you either a positive cash flow figure which mean that you’ve got more cash coming in than you’re spending or a negative cash flow figure which is when you are spending more than you’ve got coming in.

You can then keep a running total, from week to week, or month to month, to get a picture of your cash flow forecast over time. Too many negative weeks might result in trouble for your business, and you’ll need to do some forward-planning to make sure you can meet your commitments. For example; paying salaries, loan payments, and rent. Equally a few positive months might signal that you’ve got money to expand or invest.