cash flow forecast

A cash flow forecast will assist any company in finding out the future balance in their bank account at any given time. Cash forecasting may be required if you are looking to banks or investors for investment, loans or overdrafts. It may also be required for Management on a regular basis to assist them in business decisions. Even if you are a sole trader you may find the forecast a useful tool.

Cash Flow Projection

Cash flow forecasts are normally prepared for a period of one year. If your business is struggling financially it may be worth completing a weekly of monthly Cash Flow Forecast.

A monthly projection may show a positive balance at the month end, but a weekly projection may show a negative balance for one or two weeks during the month. If you are aware of financial problems it is easier to try and avoid, there are several measurers that you could take including putting more money into the account, extending an overdraft or delaying a payment or purchase.

If you are looking to expand you business in the future, by looking at the cash flow forecast you may be able to decide when the money will be available to do this.

Differnce between Cash Flow Forecast and Profit and Loss

Cash Flow Forecast example
It is different from a Profit and Loss or a Balance sheet as it shows cash which is 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.
  • You may give or receive credit, the payment or receipt may therefore be in a different month from the P& L.
  • There may be regular Direct Debits for fixed amounts, but the actual amounts on the bills entered in the P&L may be different.
  • Dividend Payments may be made after the dividend date.

How to prepare for a Cash Flow Forecast

To prepare a forecast you will need to know several pieces of information these include:

  • Opening Bank Balance
  • Customer Receipts
  • Purchase of stock or Fixed Assets
  • Business Overheads
  • When money is due into the business
  • Dividend payments
  • Taxation Payments
  • Finance to be either paid in or repaid

You can then set up a simple excel spreadsheet posting the cash receipts and payments when you expect them to happen. Some of the figures will need to be estimated.

Sample Cash Flow Forecast for a period of 12 months.

The sample 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. Differences can be spotted and you can then adjust any future figures that may be necessary.

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