How to create a cash flow forecast for your business

Make sure you don't run out of cash!

The more accurate your cash flow forecast is, the more useful it will be in helping you predict the future position of your business. Cash flow planning and forecasting is typically done on a weekly or monthly basis depending on when you need to take cash out of your business to pay your bills.

Here's what you need to create an accurate cash flow forecast:

• Realistic forecasts for future expected sales (which does NOT mean taking the previous year’s sales figure and dividing it by 12 to show a monthly forecast for this year!)
• A realistic view of when you expect to receive payment for the sales you've made (which isn't usually in the same month it was earned, unless you are a cash business or customers pay in advance)
• Details of how much and when all your items of expenditure will need to be paid. Look at the payment terms and conditions on all the items you've bought or agreements you've entered into
• Include details of how much and when any loan repayments are due
• If you have it, last year’s actual cash flow figures may help you to recall items you've forgotten to include
• If you’re registered for VAT you'll need to show input and output VAT as separate items in your cash flow forecast

Review your forecast as you go through the year and upate it with actual figures.  At the end of the year it will be an accurate record of the cash flowing in and out of your business for that year.  It'll be invaluable when forecasting your cash flow for next year.

What does a cashflow forecast look like, and where you can get a cash flow template

Free downloads of cash flow templates to show cash flow examples and cash flow forecasts are available from the Microsoft Office Online website.