Cash flow is the total amount of money being transferred into and out of a business – forecasting it is an absolute must for all sized businesses. In this month’s blog, we share our top tips on why, how and the benefits of forecasting your cash flow.

A cash flow forecast will enable you to make future decisions for your business such as:

  • Adding new products or services to your revenue stream.
  • Recruiting a new member of staff.
  • Storage or expansion space.
  • Assessing borrowing decisions.

There are three elements to creating a cash flow forecast: sales, profit and loss. The first step is creating a sales forecast which is something we covered a few blogs back, here is the link to it. Start with last year’s sales by month and then overlay that with seasonal variants, one off events, promotions so you can build a picture for this year.

 The next step is to add in your costs (adding these to your sales will create your profit and loss). Your costs are day to day expenses for the running of your business, they may include: office supplies, training courses, technology, subscriptions, delivery, cost of materials. They also extend to salaries, national insurance contributions and tax returns. On this sheet remember to only include day to day costs not one-off expenses such as a new computer/laptop.

Now that you have your profit and loss you can start on creating your cash flow forecast. Money in from your sales forecast should be the first row, then have a think about non-sales income for example; an investment or a loan. Then the money out by month as per your profit and loss sheet. Then you can start to think about beyond day to day costs i.e. one-off payments. The last piece of the puzzle is totalling it up per month, money in minus money out which will give you your cash flow or as some people call it – your working capital.

Your new forecast will allow you to see opportunities across the year and fully arm you to make financial decisions. Our last tip, remember it is a forecast and therefore can change at any point! Make sure you weigh up all variables before making any financial commitments. If in doubt, just give us a call and we will gladly assist you.