Cashflow Management


Cashflow forecasting

Cashflow forecasting enables you to predict peaks and troughs in your cash balance. It helps you to plan borrowing or tells you how much surplus cash you’re likely to have at a given time. Many banks require forecasts before considering a loan.

Elements of a cashflow forecast

The cashflow forecast totals the sources and amounts of cash coming into your business and the destinations and amounts of cash going out over a given period. There are normally two columns: one listing forecast amounts and one listing actual amounts.

The forecast is usually done for a year or quarter in advance and divided into weeks or months. It is best to pick periods during which most of your fixed costs – such as salaries – go out. The forecast lists:

  • receipts
  • payments
  • excess of receipts over payments – with negative figures shown in brackets
  • opening bank balance
  • closing bank balance

It is important to base initial sales forecasts on realistic estimates – see our guide on how to forecast and plan your sales. Otherwise an acceptable method is to combine sales revenues for the same period 12 months earlier with predicted economic growth.

Download a sample cashflow projection spreadsheet (XLS)

Note that all forecast figures must relate to sums that are due to be collected and paid out, not invoices actually sent and received. The forecast is a living entity. It will need adjusting in line with long-term changes to actual performance or market trends.

Accounting Software

Accounting software will help you prepare your cashflow forecast. Easy-to-use programs allow you to update your projections at a touch of a button if market trends change or if there is a downturn in your business fortunes. Planning for seasonal peaks and troughs is simplified and you can also make “what-if” calculations. See our business advice article on using accounting software.

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