How To Make Cash Flow Forecasts

No business can go for long without an accurate idea of how much it is spending, when it is spending it, and why. One of the most powerful tools for being able to track your expenditure accurately is the cash flow forecast. Luckily, it is relatively simple to master.

Whilst it is quicker to update a cash flow forecast via a spreadsheet program such as Excel, there is no reason that you cannot resort to old fashioned pen and paper as well. The first step is to decide which project you want to forecast, and to ensure that you have a good idea of what the costs and expenses are likely to be. You can put together a forecast either for your entire business, or just for one segment of it. Regardless, however, you have to know at least approximately what you are likely to be spending on it.

The second step is to plan out your anticipated income in the first column of the forecast. As with all budgeting exercises, it is best to be cautious here. Make sure that you think of every likely revenue stream, and then enter a figure for it in each month of your forecast. If you are determined to be highly accurate, you can even run your forecast by week, rather than month. This will introduce a higher level of uncertainty to your forecast, however, as it is more difficult to accurately predict your revenue over a single week due to late payments and other such fluctuations.

Thirdly, you should do the same planning exercise for your outgoing expenses. Make sure to include everything, however small. If you have information from previous years, check over it carefully. Many people forget to include significant one off payments at this stage, such as insurance premiums, and find that their forecast becomes highly inaccurate as a result.

In both your predicted incoming and outgoing columns, it is also vital that you do not average out payments. In other words, if you are expecting to pay £2400 in rent in January for the entire year, do not enter this as £200 over each of the 12 months. The purpose of the forecast is to predict your cash flow during each month of the year, not your position at the end of it.

Once you have entered your predicted incomings and outgoings accurately, it is a simple task to generate your running total in the next column. Each month will produce either a deficit or a surplus, which you simply ‘roll over’ each month to establish your forecasted cash flow. If the deficit ever dips below your total savings, you’ll know you need to do some more work on your project’s viability! Once you’ve started, you should make sure to update your cash flow forecast each month with accurate, real world figures. This will help you to track your position in terms of cash flow, and also serve as a valuable indicator of how the project is progressing.

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