Cash Flow Forecast with FREE Template

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What is a Cash Flow Forecasting?

A cash flow forecast will assist any small business in finding out the future cash balance in the bank account at any given time. It is essential for small business owners to plan growth or cash flow issues.

Cash flow forecasting may be required if you look to investors or banks for investments, loans or overdrafts. It is also part of a business plan.

It may also be necessary for management to assist them in planning ahead in business decisions. Even if you are a sole trader, you may find the forecast a helpful tool.

The easiest way to produce a regular forecast is to use accounting software. QuickBooks includes 24-month forecasting tools within their software.

 

At the end is a free cash flow forecast template download, example and instructions for use.

Definition of a Cash Flow Forecast

A cash flow forecast or cash flow projection is an important tool businesses use to predict future cash flow. It considers all incoming and outgoing cash, as well as any expected changes in income or expenditure. It can give a business a clear picture of its financial health and help identify any potential problems early on.

Businesses can use their cash flow forecasts to plan for their future needs, such as investing in new machinery or expanding their premises. It will also show when there are cash flow shortages. Regularly updating and reviewing a cash flow forecast can help businesses stay on track and make informed financial decisions.

Cash Flow Forecast with FREE Template

Cash Flow Diagram

Below is a cash flow diagram showing some transactions to include in the report.

Cash Flow Diagram

The left shows the cash income or revenue. It comprises of sales, cash receipts, interest and any other income.

The right shows all the small business cash outflows or expenditure, including bills, loans, direct debits, wages, taxes, and dividends. The bills will include the cost of sales and most general business overheads.

Why is a Cash Flow Forecast Important?

Cash flow forecasts are generally prepared for a year. If your business struggles financially, it may be worth completing an accurate weekly, quarterly or monthly cash flow forecast. If the business is really struggling, you may need to prepare a daily cash flow forecast.

A monthly projection may show a positive balance at the month-end, but weekly projected cash balances may show a negative cash flow balance for one or two weeks during the month.

If you are aware of financial problems, it is easier to try and avoid them or take action. In that case, you could take several measures, including putting more money into the account, extending an overdraft, or delaying payment or purchase.

If you want to expand your business in the future, you may decide when there are cash surpluses to do this. 

Cash Flow Forecast with FREE Template

Difference between Cash Flow Forecasts and Profit and Loss

Cash Flow Forecast example

It is different from a Profit and Loss or a Balance sheet, forecast as it shows the cash paid into or taken out of the business in a given month. Some of the differences are:

  • Includes payments on both P&L and Balance Sheet, e.g. Fixed Assets and Stock, which are not included in the Profit and Loss.
  • You may give or receive credit; the payment or receipt may be in a different month from the Profit and loss. For example, you raise a sales invoice in March, but payment is not received until June.
  • If you receive credit from suppliers, forecasting accounts payable is essential for planning when payments are made.
  • There may be regular Direct Debits for fixed amounts, but the actual costs on the bills entered in the P&L may differ.
  • May make dividend payments after the dividend date.

Advantages of Forecasting Cash Flow

There are several advantages, including:

  • It can help you plan for future expenses and ensure you have the cash to cover them.
  • Accurate cash flow planning will show when you have a negative cash flow figure, allowing time to plan and avoid any problems.
  • Help you identify and track trends in your company’s cash flow, so you can make changes to ensure that your business stays healthy.
  • Help you make better decisions about how to invest your company’s money.
  • Keep your business financially healthy and secure.
  • Show when there is excess cash to reinvest in the business.
Cash Flow Forecast with FREE Template

Disadvantages of Cash Flow Forecasts

Although a cash flow forecast is essential for some companies to plan the year ahead, this might not be the same for a small business. A small business with little expenditure might waste time and reduce the time for earning income.

How to prepare Cash Flow Forecasting

When forecasting cash flow, you must be as realistic as possible with estimating the figures.

You will need to know several pieces of information on the income and expenses, including:

  • Opening Bank Balance
  • Customer Receipts and invoices
  • Purchase of stock or Fixed Assets
  • Business Overheads
  • Staff salaries
  • Dividend payments
  • Tax Payments
  • Loan payments

If you are VAT registered, the amounts will consist of VAT, and the VAT payment will also be added.

We will look at each of these in more detail to make up your cash flow forecast figures.

Opening Bank Balance – The opening bank balance or cash position is available from statements or online banking. Enter this figure as the starting point.

Customer Receipts and invoices (projected income) – The first thing to do is forecast accounts receivable. Some figures will need estimating. It may help set up a detailed spreadsheet showing when you expect to receive cash.

A good starting point is from the sales invoices and entering them when you expect to receive payment. It will help to look at revenue from the previous Profit and Loss (Income Statement) to track variations during the year.

Purchase of Stock or Fixed Assets. If you sell stock items, you will need to enter the cost of the stock, don’t forget any credit terms you may be offered. An example is the business purchases stock in January but pays in February. The cost is entered in February.

Forecast for any fixed asset expenses, including computers, furniture, equipment and machinery.

Business Overhead Costs– These might be easier to do as they are often paid by direct debit and are a fixed monthly amount. Fixed overheads may include rent, gas, electricity, rates and telephone.

Add any variable expenses, including salary, stationery, business expenses, pensions, advertising and general business expenses. Don’t forget to record any cash payments.

Dividend Payments – If you are a Limited Company, you might pay shareholders dividends, either monthly or annually. Post the transactions when you expect to make them.

Taxation Payments – There are several different taxes that a business might need to make payments for, including Corporation Tax, PAYE, NI and VAT. Enter the estimated figures when they are due.

Loan Finance Costs – If you have a loan enter the loan payment amount due each month. If you want to take out a loan during the cash flow forecast, enter this figure and any repayments due.

The easiest way to calculate most figures is to look at the bank statements, Profit and Loss and Balance sheet. A good accounting package will help obtain the figures, especially for money owed from customers.

It is worth taking a look at the following packages:

Cash Flow Forecast with FREE Template
Cash Flow Forecast with FREE Template

Sample Cash Flow Forecasting Projection for 12 months.

Cash Flow Forecast example

The sample cash flow forecast shows the company started with £10,000 of investment. At the year-end, £5030 will be in the bank. Therefore if the company hits all its targets within the first year, a small amount will be available in the bank.

It is worth spending time each month looking at the forecast and comparing it to the actual cash. You can spot differences and then adjust any future figures that may be necessary.

12-Month Simple Cash Flow Forecast Template UK

Our cash flow forecasting template is in three sections: total income, then total expenses, and the last section shows net cash flow.

Income – Expenses = Net cash flow

The download for our easy-to-use 12-month cash flow forecast template is at the end of this page. It is easy to use by following the instructions below.

Instructions for Use – Forecasting Process

Free cash flow forecast template

Open the cash flow forecast template and update the “1 year” to the year you are completing; you may also wish to add the business name. An example is Cash Flow Forecast 2021/21 for ABC Computers.

The next task is to change the months. If you plan to complete the template for 12 month period, start with the first month; you can either continue to type each month in the row or click on the first month and drag the bottom right-hand corner of the cell to month 12. It will automatically change each heading.

Add the week commencing dates in each column if you require a weekly cash flow forecast template.

To set up the chart of accounts, change the income 1, 2, and 3.. to suit your business, for example, sales of hardware, Consultancy, Computer repairs, etc. This is all the revenue accounts.

Next, update the expenses – Exp 1, 2, 3.. to your expenditure, for example, wages, loans, utilities, cost of sales and general overheads.

In cell C32, enter the opening bank balance.

You are then ready to start adding the weekly or monthly figures. Remember to add the revenue or expenditure in the week or month you expect it to happen.

For example, the business issues a sales invoice in January, but the customer is a slow payer expected in the bank in March. Therefore, enter the figure in March.

All the monthly balances are automatically calculated month by month. Once complete, it is worth checking that the monthly balances are what you expect.

Cashflow Forecasting Software

Before using a template for your cash flow prediction, it is worth checking the accounting software you use to see if it is included. Some accounting packages include cash flow reporting software. It might save lots of time as it will use the figures from the accounts. There is also advanced cashflow projection software available for larger businesses.

Download the Free Cash Flow Forecast Template

By downloading our free templates, you agree to our licence agreement, allowing you to use the templates for your own personal or business use only. You may not share, distribute, or resell the templates to anyone else in any way. Download the cash flow template UK below.

Microsoft365 for Business

Cash Flow Forecasting Tools Conclusion

A projected cash forecast is a financial report that calculates the future bank balance of the business. It is produced for 12 months but can be weekly, monthly or quarterly.

To create cash flow projections, you will need to look at the actual figures for income and expenditure from a previous period and estimate revenue and expenses in future months.

The best way to create the model is by downloading our cash flow forecast template or creating a worksheet in Excel. The other option is to use accounting software.

If you are creating a financial report for investors or a bank, it is worth seeking the advice of an accountant.

Further information is available on start-up loans.

Other useful Excel Bookkeeping Templates

Business Accounting Basics have created over 25 useful Excel Bookkeeping templates to help you manage your business finances. Our templates are designed to be easy to use and are all free to download. The templates include:

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