How to create a cash flow forecast for your business

A cash flow forecast is an important tool for business planning. And right now, understanding the cash coming in and going out of your business is vital.

A cash flow forecast will show you how long your business can continue to survive on current sales levels, by showing you how much money you’ll have in the bank at the end of a period.

It will give you an understanding of what the revenue drivers are in your business, and give you visibility of your expenses and the things you can control. Having this information in a forecast will also allow you to plan for different scenarios, work out your priorities and understand the outcomes of different options such as diversification.

A cash flow plan can give you a proactive tool to deal with uncertainty. If you are seeking funding in the form of a loan, applying for business support or just establishing your long term survival, you'll need a cash flow plan.

What information do you need?

We can help you to create a plan for your business. The plan is only as good as the data you have. So here’s what you’ll need to get started:

Understanding where your cash is coming from

Start with revenue from sales - break your sales figures up by product line and across channels. This will show you where the cash is coming from. For example:

• Does 80% of your revenue come from only 20% of your products?
• Do you sell to different markets and does one deliver more revenue than others?
• Are some of your products high value but low volume or low value at high volume?

The data you collect will enable you to ask questions, such as can you reduce margin to lift sales, can you push volume up or are there other channels to sell through?

Make sure you include all other revenue streams, such as grants, tax refunds or investment in your cash inflows.

Understanding expenses - where is the cash going to?

This will include all the costs associated with your business, including rent, wages, supply materials, bank loan fees and charges, tax bills, and electricity.

If you have a bank loan, include the details such as the length of the term and the monthly payments.

Your cash flow plan should also include tax payments when they are due and any capital expenditures.

Some of your variable expenses will directly relate to revenue such as freight or materials. When your sales stop, these will drop too, so your cash flow plan should reflect this relationship in order for you to scenario plan.

Controlling expenses - what costs are fixed and what are the variable costs that you can control? You may not be able to stop fixed expenses like rent, power and internet, but you could reduce the cash going out on petrol and travel, cleaning, and even directors' drawings.

Making informed decisions in your business

A good cash flow forecast will collate all the data from your business in one place. It will allow you to plan and work out how long your business can weather a storm. It will also help you make decisions around staffing, purchasing inventory, ordering supply materials or investing in growth.

It’s worth remembering that a cash flow plan is a different tool to a budget. Here’s one example: a budget will show sales but a cash flow plan will show the cash benefit of those sales. If you offer credit to customers, your sales may not result in immediate cash flow.

Want to get a handle on cash flow in your business?

If you’re not certain of how to get this information from your accounting software, talk to us about which reports to run. You may need a combination of accounting software reports and projected figures.

Use the information above to source the data you’ll need and get in touch. We can help you build a plan that gives you cash flow projections to assist your decision making.

Finding the balance

Looking for a little more work-life balance?

Sometimes it seems impossible when you are in the thick of it. The following ideas might help provide some light at the end of the tunnel.

Prioritise

Work often dictates to us, rather than the other way around. Create a list of all the things that need doing and categorise them. For example, work out the tasks that are ‘important but not urgent’ and ‘urgent but not important’. Task or project management tools like Trello can simplify your workload and and help to prioritise your time.

Delegate

Letting go can be an opportunity for others in the team to shine. Alternatively, bring in a contractor to help clear the load and you may find they bring in new ideas, create opportunities or streamline the process. Don’t limit yourself to what’s on at work - think about what would help at home too, such as a meal kit delivery to simplify the end of the day.

Book it in the diary

We are all guilty of putting off an exercise class or a coffee catch up because work takes over. These events are important for your mental and physical health and may give you space for creative thought or the ability to think with more clarity. Plus, you’ll return to work feeling more productive. Book it in and consider joining a group so you are more committed to turning up!

Use the technology to help you

‘Always on’ technology such as smart phones are designed to make life easier but we’ve ended up busier than ever. So choose the apps and tools that can reduce the stress. Whether it’s for communication and meetings, or your filing and accounting. An app could save you time and allow you to get on with other things - read more on apps. We can help with the right accounting software solution to reduce the paperwork.

Share with your network

Are there individuals in your network who face the same challenges or can help you achieve your goals? Set up a monthly breakfast to catch up, support and learn from each other. You’ll go back to work with new inspiration.

Do what you love

At the end of the day, your work is ‘part of’ your life not separate from it, so if you enjoy it, you’ll feel you have more ‘balance’.

Get in touch to talk about how we can help you achieve balance in your business.

What’s in the forecast?

When we set out on a fishing trip or hike, we always check the weather forecast.

It’s no different in business. The forecast tells us if there’s bad weather (poor cashflow) in store based on the direction we’re heading.

Your forecast will tell you:

The difference between a business forecast and a weather forecast is that, when the business forecast is showing bad weather, you can do something about it to make the sun come out. The forecast will tell you what’s going well and what’s not, so you can make adjustments to reduce the impact of bad weather.

Just as you wouldn’t go fishing without checking the forecast, you shouldn’t run your business without an annual forecast. So, don’t live in your raincoat, waiting to get soaked - take control and talk to us about getting your forecast done so you know what to expect.

“Planning is bringing the future into the present so that you can do something about it now.” - Alan Lakein

We’re here to help you, every step along the way. Get in touch!