What is cashflow?

What is cashflow?

Cashflow is the total money going in and out of a business in a certain period.

What is a cashflow forecast?

A cashflow forecast is the plan for the total money going in and out of a business in a certain period. It is really useful to know what should be in your bank at a certain point in the future. This can be for 12 months or longer, but a great start is forecasting quarterly.

A cashflow forecast can be on excel but there are some great software’s to make it really easy and is built using estimates of what income and expenditure you have. Having a budget is a great help for this.

If all your predicted income less all the known expenses is a positive number, then you have a positive cashflow. This is important to see that your business is in a good financial position. It has been very important lately when many businesses have zero income to they can see how long they can keep affording their expenses before they run out of money.

A lack of cash reserves is one of the biggest reasons why businesses fail. Cash reserves doesn’t mean a bag full of notes, this means what cash you have easy access to – eg your bank.

How to prepare a cashflow forecast?

1. Decide the period you are going to forecast for.
Sounds an easy step. Naturally it is best to plan as far ahead as possible, but short term plans can be really useful too. Often businesses have both to support their decisions. New businesses might find it hard or impossible to create a long-term forecast, but that shouldn’t be a problem. Plans can be updated according to changing circumstances, and they should be adjusted once it’s possible to get better estimates.
If you are new to this then don’t overthink it and start with 12 weeks.

2. Decide on your assumptions and basis.

As the forecast is for the future it obviously includes some estimations/ assumptions that you have made. These aren’t just plucking figures out of thin air. The more accurate your assumptions are, the more reliable your forecast will be.

The most important assumptions that serve as a basis for cash flow forecast are:

  • Changes in prices, their timing, and volume
  • Estimated sales growth
  • Seasonal changes
  • Wages changes and increases.

3. Prepare an estimate for income

Following on from point 2 you can now estimate the income for the period you have decided. What contracts, bookings, recurring income do you already have in place? What else do you expect? Are there any proposals out, contracts being discussed, offers and sales in your pipeline? Create a picture of the expected income.

Older businesses may be able to base this on previous years or seasons where new businesses may find this harder.

A tip for new businesses is to start with the expenses and then you have a target for sales you need to make.


4. Add the expenses

The easiest way is to start with the fixed expenses and list these – these are the ones you know you have to pay each week/month. These are things like rent, rates, salaries, phone, internet, loan repayments.
Then included the variable expenses – ones that are impacted by the sales you make.
Don’t forget to include the annual expenses like taxes, insurances and larger one off that you might pay.


5. A good plan makes a great business.

Working and sticking to budgets and cashflows can really set your business on the right path and ensure your company’s survival and growth.

If you need help with the cashflow in your business and with forecasting and monitoring or even just where you need to start then get in touch.

Get ahead, get it done.

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