How to Prepare a Cash Flow Forecast for Your Business

Anna Koutras

 · 06/15/2018  · 06/15/2018

Preparing a proper cash flow forecast can be a pivotal element in your pursuit of success for your business. It’s a powerful tool for forecasting where you will stand financially in the near future.

You’ve spoken to the people in the industry, you’ve set up an outline for your business plan, and maybe you’ve secured some funding for your business venture.Now is the time to put things down on paper! Forecasting a flow of funds in and out of your business is essential to planning your growth. So how do you put together a cash flow forecast?

An integral part of your overall business plan, managing your cash flow will show you the financial pitfalls in your business operation and will give you perspective, helping you stay above the water. If you manage to get it right, a cash flow forecast is helpful in giving you good insight on where your business can profit and where your business bleeds cash.

✋🏻 Okay, so - what is a cash flow forecast?

Cash flow forecast definition: Essentially, it is an estimation worksheet of the flux of money your business will experience, showing all projections of income and expense. Forecasts are usually done for the next 6 months to 12 months, or on a quarterly basis.

The easiest way to see the flow of cash in your own business is to create a table with 3 columns:

  • Revenue - keep a record of money expected to come into your business
  • Expense - write down all your expected expenses during that timeframe
  • Net - add up the numbers in columns 1 and 2 to come up with your net cash flow

The general idea is simple - stay on the positive side, don’t go into the red! After all, you're in this to make a profit. Even if you were a not-for-profit organisation, it’s still a good idea to keep out of the red. Depending on which phase you're at with your company, you might not even aim to profit, but simply increase ROI so that you can reinvest the money back into your business for scaling and expansion.

Ultimately, the strategy should be to maximise the influx of cash while you minimise spending. Things like increasing payable invoices, a more favourable interest from your business bank account, investments from angel investors can help you up the numbers on the positive side. In order to slow down the outflow of cash you could even go for things like being less decadent with the choice of paper you buy, finding second hand printers, using a cheaper broadband plan for work – anything goes! Only you will know what best cash flow optimisation you can come up with for the type of business you have.

Getting cash flow forecast right is one of the first steps you take in becoming a structured, healthy business.

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⚙️ Some Hacks for Preparing Your Cash flow Forecast

Be pessimistic (...and then optimistic)

You should try not to overestimate the sales you’re going to make. Founders tend to get carried away with business dreams. While it’s good to be ambitious, make sure your feet still touch the ground. Create two versions for every number you’ll put into your forecast; a good scenario and a bad scenario if you will. This way you can expect the best but also be prepared for the worst.

Make way for overheads

Plans can and will go awry, calculations missing targets. Half the time, overheads are the cause. Bought a printer? You’ve also bought upkeep cost to go with that very printer. The overhead is extra baggage for any payment that you make. Have an offset on the side but even before that, try to think of overhead costs that every purchase will bring.

Straight lines rarely exist

So don’t expect to make the same amount of sales all the time. Maybe you have a few connections, you’ve scored some deals… are you sure to keep up? Say you have a lemonade stand, what will happen come September? Try to have a secondary plan where you account for fluctuations in income/spending. What else can you do at that stage that will bring you more income, and keep your costs at a minimum? In order to do this, you can go for monthly plans for business equipment that you will need on a monthly basis, so it’s easier to cancel. Think in terms of clusters.

Think Frugally

Maybe some things you could do to supercharge your business ROI don’t necessarily involve spending money, but just spending less? Always think of getting the most out of things with little spending. Need new furniture? No you don’t. You can buy online, or just go to start-up hubs and check the billboards for furniture sold (from previous start ups moving out). Or… do you even need an office? Hire remote workers, sign up for a business bank account with Revolut, pay them in their local currency while eliminating foreign exchange fees. Easy!

Be frugal. This kind of thinking will minimise your costs. The end game here is your net cash flow.

Need a Good Cash Flow Forecast Template?

We’ve looked all over and tried to come up with the best cash flow forecast ever – however we realised one thing: there are different template versions all over the web with different types of businesses in mind. So, instead of making yet another version, here are a few cash flow forecast example templates in Excel format that we like - have a look and choose the best one for your type of operation, or mix and match them to come up with a solution that best fits your business.

Getting cash flow forecast right is one of the first steps you take in becoming a structured an healthy business. Forecasting growth in any part of your business will get you accustomed to keeping record of things, and can even set the nomenclature for your company, a model from which your accounting people can derive a cash flow statement.