3 easy steps to create your own CASH FLOW forecast and follow-up

A cash flow forecast can help you:

1. Plan out how much you expect to make in sales this year

2. Plan how much you expect to spend in costs

3.Understand when cash and how much cash will come into your bank account and leave it

A financial forecast should be as comprehensive as you can make it, so you should try and remember to include all your sales, costs and cash transactions. However, your forecast doesn’t have to be penny-accurate and it also doesn’t have to be difficult to consolidate.

To build a cash flow forecast, we recommend creating three separate documents: sales, profit and loss, and cash flow.

A sales forecast is a plan of how much you expect to sell in the future, normally broken down by month.

A profit and loss forecast is a forecast that combines the business’s income and its day-to-day running costs, giving you a view of your projected profit into the future.

Now that you’ve created your sales and profit and loss forecasts, you can use them as a starting point to map your cash forecast.

Firstly, you need to record in your cash flow forecast how much money you’re expecting to come in. The data will come from your sales forecast and from a non-sales income. 

Your money out comes from your profit and loss. Remember to include your costs in the months you plan to pay for them, not when you plan to incur them. For example, you may pay your staff in arrears, so you should add the money going out in the month that you actually pay them.

If any costs include sales tax such as VAT, and you’re registered for sales tax, remember to record these costs inclusive (or “gross”) of VAT.  This is different to the profit and loss forecast, where you included costs exclusive (or “net”) of VAT.

Finally, Add this to your bank balance as at the end of the previous month to see how much you expect to have in the bank at the end of the current month. If your bank balance is consistently falling, it means that you are making less that you are spending and maybe you will need to review your price strategy. If your cash flow level is increasing every month, it means that you are making more than you are spending. This could mean your need to hire a staff member or open a new location? 

Once you have put all 3 together, you will be able to plan your cash flow ahead (forecast) and do a follow-up on the actuals as often as you want-or need.

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Rebecca Troch is a Senior Business Strategy Consultant with a strong financial background. She works with small and medium-sized businesses, to understand their numbers and achieve their operational and financial goals. As a Senior Business Controller she offers Financial & Management tools to understand & improve your business performance. She founded counting the apples consulting to support companies in understanding their numbers and bring in the expertise they need to reach their goals.