How to create a cash flow forecast

Handling the ‘money side’ of a business is one of the most common headaches for owners. After all, in a competitive industry where you are wearing multiple hats at once, dealing with finances can be incredibly stressful.

But knowledge is power, and with a robust cashflow forecasting template you can predict your inflows and outflows, as well as identify any areas where your company is falling short, so you can have the best possible chance of business success. Here are four steps to get you started.

1. Estimate your sales

Whether you do it weekly or monthly, the very first step for your cashflow forecasting template is to estimate how much cash you will be bringing into the business. Take a look back at your sales history and see if those figures will be similar over the short term. If you typically experience seasonal highs and lows, these should also be factored into your sales expectations.

Other influences that may impact your prediction will be things like marketing (have you invested more money into promoting your business or products recently?) and competition (is there a new player in your sector who could potentially take customers or clients away from you?). As with any good forecast, remember to build in a margin of error, as it’s very rare that your estimate will be exact.

2. Solidify your payment terms

Anyone who has been in business long enough knows that just because you make a sale, that doesn’t mean you’ll receive the money immediately. In many instances, you’ll be waiting 30 or more days for clients to pay your invoice. These payment terms must be built into your cashflow forecasting template to provide an accurate prediction.

If your forecast shows you will be struggling with ingoings over the coming months, it might be time to speak to some of your regular clients to see if you can update your terms. Offering an incentive – such as 5% off for early payment – could help you get over any financial bumps.

3. Predict your outgoings

In addition to paying suppliers, you will also need to factor in how much money your company will likely spend in the near term. Some of these costs will be fixed – such as rent and staff salaries – while others will be variable.

It may not be perfect, but try your best to predict how those variable costs will impact your bottom line. A good way to do this is by looking back at your expenses over the previous months and years. And don’t forget about any one-off yearly fees. Things like annual subscriptions or registration fees for company cars can make a real dent if you forget to include them in your cashflow forecasting template.

4. Collate all the numbers

Once you have all your ingoings and outgoings written down, it’s time to bring everything together into your cashflow forecasting template. An easy way to do this is to start with a figure – the current amount in your business bank account is perfect – then add to that number your predicted profits, and minus your expenses.

Here’s an example. You have a starting balance of $10,000 + $8,500 profits for the coming week – $6,800 in expenses = $11,700 total.

The number you are left with is your cash flow forecast, and while there will no doubt be some room for error, it will give you an idea of whether you can expect an overall profit or loss.

The good news is that even if you are forecasting a rough few months, you can use that information to take action – whether it’s finding a cash flow finance solution or cutting costs elsewhere in the company. This is where speaking with a commercial broker can really help.

Need help with a cashflow forecasting template for your business? Contact Apace Finance today or call 1300 045 647 to put your mind at ease and have the financial side of your company taken care of.