What is a Cashflow Forecast Template

Revolut Contributor

 · 07/10/2020  · 07/10/2020

Cashflow forecasts are an essential part of any growing business but also something many business owners overlook. See how to create one cashflow forecast template for your business.

Cashflow forecasts do not need to be complex or take a long time to produce but they need to be as detailed and accurate as you can make it to ensure the data you take from the forecast is relevant.

In this blog post we will talk through the steps to create a forecast and provide an example for you to take away and use but firstly we wish to tackle the question of ‘why would i produce a cashflow forecast.’

Using a cashflow forecast can help you plan for many different scenarios for your business such as:

  • Can you afford to recruit a new member of staff?
  • Could you expand your product or service line?
  • Could you invest in a new piece of machinery?
  • Are you at risk of running out of cash?
  • Should you consider borrowing?
  • Can you extract funds from your business?

None of the above questions can be answered easily or accurately without a detailed cashflow forecast which plans for many different scenarios. Any growing business will have to answer questions about cashflow whether they are a small business with minimal cash reserves or a well funded or VC backed entity.

How to do a cashflow forecast

Below we will detail a step by step guide to producing a cashflow forecast using the template we have created.

Step 1 - Consider your sales forecast

This is possibly one of the most important elements of the cashflow forecast as it will be essential to the accuracy of the forecast and one that can easily be overestimated. Ensure you are realistic with your forecast but also consider the following:

  • Review last year's figures and identify any trends which may occur this year.
  • Can you upsell to existing clients?
  • Can you sell into new markets or territories?
  • Ensure sales are recorded inclusive of VAT (if you are registered) and the VAT is accounted for separately as this is a more accurate reflection of the cash movement in your business. (more detail below)

Step 2 - Consider your costs

The next step is to consider the costs of running your business.

Firstly Cost of Sales. If your business produces goods or services that have a direct cost to produce or deliver then you should review this first. This can also be created as a formula which increases or decreases in line with the movement of sales.

Secondly, expenses. Expenses are often referred to as fixed costs as they are not affected by the movement of sales and are largely incurred regardless of how well the business performs with sales. Examples of these would be rent, rates, salaries for indirect labour and accountancy fees. You will need to consider what is affordable here and also what is required in order to run the business.

Step 3 - Consider any capital contributions and adhoc expenditure.

Here we will consider any capital expenditure we make in the business in things such as new machinery or office equipment. The forecast will help you make an informed decision on when to incur this spend.

Step 4 - Consider any tax payments

Depending on the size and structure of your business you will have different tax liabilities at different times. Items to consider here are:

  • Monthly national insurance and PAYE due to HMRC from your payroll.
  • Quarterly VAT payments due to HMRC.
  • Annual corporation tax bill.
  • Self assessment tax (if self employed) in both January and July.

Once you have entered all these figures into the forecast your forecast is complete and ready to be used. Ensure you continuously monitor the forecast to ensure it is as accurate as possible.

Download our free cash flow forecast template here.

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About the author

At Nephos we believe that there’s a better way to grow your business. It’s time to bring your accounting into the digital realm, giving you greater control and clarity. The word ‘nephos’ is Greek for cloud, and nephologists study clouds to understand weather patterns. Like nephologists, we focus on the data held within the cloud, looking for patterns and movements that allow us to make the right financial forecasts and predictions. Nephos was built on the principle that technology can, and should, work harder for your business. Compliance is just one side of the coin – we don’t just help our clients to make sure they’re following the rules, we use our knowledge and insights to ensure they’re building for the future.