Cash Flow Forecast with FREE Template

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 lack of cash.

Cash flow forecasting may be required if you look to investors or banks for investment, 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 cash flow forecast is to use accounting software. QuickBooks includes 24-month cash flow 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 is a tool used by businesses to predict future cash flow. It takes into account all incoming and outgoing cash, as well as any expected changes in income or expenditure. A cash flow forecast can give a business a clear picture of its financial health and can help to 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. Regularly updating and reviewing a cash flow forecast can help businesses stay on track and make informed decisions about their finances.

Cash Flow Diagram

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

Cash Flow Diagram

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

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

Cash Flow Projections

Cash flow forecasts are generally prepared for a year. If your business is struggling financially, it may be worth completing an accurate cash flow forecast weekly, quarterly or monthly. 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. 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 are looking to expand your business in the future, you may decide when the money will be available to do this. 

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, 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 on the Profit and Loss.
  • You may give or receive credit; the payment or receipt may, therefore, be in a different month from the Profit and loss. An example is you raise a sales invoice in March, but payment is not received until June.
  • 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 that you have the cash on hand to cover them.
  • 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.

Disadvantages of a Cash Flow Forecasts

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

How to prepare Cash Flow Forecasting

When forecasting, you will need to be as realistic as possible with estimating the figures.

You will need to know several pieces of information on the income and expenses these include:

  • 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 is available from either the 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; these may include computers, furniture, equipment and machinery.

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

Add any variable expenses, including salary, stationery, business expenses, pensions, advertising and general business expenses.

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 of the figures is to look at the bank statements, Profit and Loss and Balance sheet. Using 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 that 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 Cash Flow Forecast Template UK

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

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 are planning 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.

If you require a weekly cash flow forecast template, add the week commencing dates in each column.

To set up the chart of accounts, change the income 1, 2, 3.. to suit your business, for example, sales of hardware, Consultancy, Computer repairs… 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.

Cash Flow Forecasting Software

Before using a template for your cash flow prediction, it is worth checking the accounting software you use. Some accounting packages include cash flow reporting software. It might save lots of time as it will use the figure from the accounts.

 

Download 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 cash flow template UK below.

Cash Flow Forecasting Tools Conclusion

A projected cash flow 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 by using 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.

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