Knowing how to forecast cash flow is an important part of financial planning when you run a business. Maintaining a healthy cash flow is essential so that you can plan ahead effectively and have money available in the event of an emergency. <\/p>\n\n\n\n
This guide explains all you need to know about creating a cash flow forecast.<\/p>\n\n\n\n
Cash flow is a measurement of the amount of cash that comes into and goes out of your business over a period of time. <\/p>\n\n\n\n
Cash that comes in is usually the money you get from sales, but it might also be from selling assets or receiving a grant, for example. Outgoing cash will include wages, bills, and payments to suppliers. <\/p>\n\n\n\n
If you have positive cash flow, this means you have more cash coming into your business than you have going out. On the other hand, when your cash flow is negative, you have more cash going out of your business than you have coming in. This can make it difficult to cover bills and other expenses, particularly if it lasts for a lengthy period of time. <\/p>\n\n\n\n
Measuring cash flow is important because it helps you to meet your existing financial obligations and plan for the future. Cash flow measurement can be the difference between business success and failure. <\/p>\n\n\n\n
A cash flow forecast can enable you to assess if and when you\u2019re going to run out of money so that you can plan ahead. It might help you to work out whether you need to reduce overheads or find new investment. <\/p>\n\n\n\n
Forecasting cash flow can also help you to assess when your business is doing well. This could encourage you to expand into new markets, hire new staff or invest in new products. Knowing how well your business is doing can help you to establish whether you can afford to make these changes. <\/p>\n\n\n\n
Follow the steps below to help you get started and forecast your cash flow:<\/p>\n\n\n\n
Your first step is to decide how long you want to forecast for. You can forecast over a period from a few weeks to several months, it\u2019ll depend on how far ahead you can accurately predict. If your business has been running for several years, you might be able to use sales data from previous years to guide you. But if you\u2019re a new business, you might need to keep your forecasts to a shorter period as you might not have as much data available.<\/p>\n\n\n\n
If you are unable to forecast too far ahead, don\u2019t worry as your cash flow forecast can change over time. In fact, it\u2019s a good idea to update it regularly. <\/p>\n\n\n\n
Next, for each week or month in your forecast, list all the cash you have coming in to the business. It\u2019s sensible to have one column for each week or month and one row for each type of income. <\/p>\n\n\n\n
Start with your sales and add them to the correct week or month. If you have previous years\u2019 figures, this can help you. Just bear in mind your forecast needs to show when the cash is actually in your bank account. This means you need to add the figures in for when you know clients will have paid invoices or bank payments will have cleared. <\/p>\n\n\n\n
You\u2019ll also need to include non-sales income, such as tax refunds, grants, and investments from shareholders. <\/p>\n\n\n\n
Then add up the total for each column to work out your net income<\/a>.<\/p>\n\n\n\n As well as understanding what you have coming in, you also need to know what you have going out. Make a similar list of all the money you\u2019ll be spending, such as:<\/p>\n\n\n\nList all of your business outgoings<\/h3>\n\n\n\n