How to cash flow forecast effectively

During this blog, I will be giving you a step-by-step guide as to how to compose a well-structured cash flow forecast.

Why is cash flow forecasting important?

If you don’t already, cash flow forecasting is something that you should be sure to implement into the monthly running of your business. A cash flow forecast allows you to manage and predict your revenue and outgoings each month. This in turn helps prevent you making any late payments and damaging your credit score. So, let’s get into it.

Set your cash flow planning period

Firstly, you should create a forecast that covers a period as long as your cash flow cycle at the very least.

But you should also look to maintain it. Updating your plan as you cycle progresses enables improved accuracy. So, as things change, as they inevitably do, you should revise your plan appropriately.

List all incomings

For each of your cash flow cycles list all the revenue you have coming in. It is ideal to create a spreadsheet, that has one column for each week or month, followed then by a row for each source of income.

A good place to start is your sales. You might be able to make these predictions based upon last year’s figures. Although, bear in mind that this is when the cash is actually in your bank account. Therefore, enter the figures accordingly (when client payments are due, or bank payments will be cleared).

Don’t forget other sources of income such as:

• Shareholder/ owner investments
• Grants
• Tax refunds
• Royalties
• Licence fees

Then add up the total for each column, this will then leave you with your net income.

List all outgoings

Now you know your revenue, you need to calculate your overheads.

Some examples of these may be:

• Rent
• Salaries
• Materials
• Marketing expenses
• Loans
• Tax bills
• Fuel costs

You then apply the same procedure as you did for your incomings, add each column up and this will give you your net outgoings.

Are your overheads getting the better of your cash flow? You can read all about how to lower your overheads here.

The final step

Lastly, for each week or month column, subtract your total outgoings from your income. This will then leave you with either a positive or negative cash flow figure.

A positive cash flow figure is what every business should be aiming towards. This means you have more cash coming in than you do flowing out. And a negative cash flow figure is the opposite, meaning that you are spending more than your income.

What if I am just starting out?

If you are a start-up, having no business history to gauge an idea, you might be wondering what to base your cash flow forecast off. But this doesn’t mean that you can’t write one, everyone has to start somewhere. You can fill it out with the information that you already have and then revise the plan as you go along. From this you have then built a good foundation to develop upon for your next cash flow cycle.

Contact Us

Are you suffering from a negative cash flow? Or perhaps you just want to keep your positive cash flow afloat. Either way, finance is a fast and effective solution to improving your cash flow. Give us a call on 01494 506 383, or send an email to hello@scaffoldfinance.co.uk to find out more about how we can help.