Cashflow Forecasting
Cashflow forecasting enables you to predict peaks and troughs in your cash balance. It helps you to plan borrowing and tells you how much surplus cash you're likely to have at a given time. Many banks require profit and balance sheet forecasts as well as a cashflow before considering a loan.
The cashflow forecast identifies the sources and amounts of cash coming into your business and the destinations and amounts of cash going out over a given period. There are normally two columns, listing forecast and actual amounts respectively.
The forecast is usually done for a year or quarter in advance and divided into weeks or months. In extremely difficult cashflow situations a daily cashflow forecast might be helpful. It is best to pick periods during which most of your fixed costs - such as salaries - go out. The forecast lists:
- receipts
- payments
- excess of receipts over payments - with negative figures shown in brackets
- opening bank balance
- closing bank balance
It is important to base initial sales forecasts on realistic estimates. If you have an established business, an acceptable method is to combine sales revenues for the same period 12 months earlier with predicted growth.
Download our sample cashflow projection spreadsheet|.