Cashflow forecasting
Use this Cashflow forecasting Info Guide to learn how to proactively manage your business’s cashflow by preparing a Cashflow Forecast.
- Cashflow forecasting puts you in control
- You can identify surplus cash for investment
- You can time your receipts and payments
- You can plan your borrowing requirements
Cashflow forecasting puts you in control, helping you to negotiate facilities with your bank manager in good time. This helps ensure that you make more informed decisions for forward planning your business.
Cashflow forecasting takes account of all your business transactions, not just your trading transactions. This makes it easier to predict peaks in your cash-balance and identify surplus cash which you can invest to earn interest.
Cashflow forecasting enables you to predict troughs in your cash-balance and to identify periods when you may face a cash shortage. This assists you in timing your receipts and payments.
You can use cashflow forecasting to estimate when your business is likely to have a positive or negative cashflow and in turn to estimate when your bank balance is likely to be in overdraft - your bank will require this information when considering loan applications. You can then better plan your borrowing requirements, or place cash on deposit to earn interest.
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A Cashflow Forecast is a spreadsheet into which you enter your anticipated cash inflows and cash outflows for the next three months or for the forthcoming year in order to calculate the cash-balance which will be either positive or negative.
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Cashflow Forecast Example
|
| |
Januaryddd |
Februarydff |
Marchfgf |
Totaldff |
| Cash inflow |
| Sales (incl. VAT) |
30,000 |
50,000 |
75,000 |
155,000 |
| Total inflow |
30,000 |
50,000 |
75,000 |
155,000 |
| |
| Cash outflow |
| Purcahses (incl. VAT) |
15,000 |
25,000 |
29,000 |
69,000 |
| Payroll - net pay |
13,000 |
16,000 |
19,000 |
48,000 |
| PAYE / PRSI |
0 |
4,000 |
5,000 |
9,000 |
| VAT |
0 |
0 |
11,000 |
11,000 |
| Loan repayments |
10,000 |
10,000 |
10,000 |
30,000 |
| Total outflow |
38,000 |
55,000 |
74,000 |
167,000 |
| |
|
|
|
|
| Net outflow |
-8,000 |
-5,000 |
+1,000 |
-12,000 |
| |
| Opening cash balance - start of month |
1,000 |
-7,000 |
-12,000 |
|
| Closing cash balance - end of month |
-7,000 |
-12,000 |
-11,000 |
|
| |
Realistic estimates
Estimate as realistically as possible the amounts of cash coming into your business and the amounts of cash going out for the forthcoming three-month period or for the forthcoming year.
Spot cashflow problems
Show cashflows on a week-by-week or month-by-month basis. This will help you to spot potential cashflow problems in advance and take corrective action.
Timing
When forecasting cashflow, it’s the timing of VAT-inclusive cash received or paid that is important, not when the transactions initially take place.
Remember!
A realistic and flexible Cashflow Forecast is an essential tool for putting you in control. The more realistic your estimates, the better your Cashflow Forecast will work for you!
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Your Cashflow Forecast should be a living tool that is rolled on from one week or month to the next with actual information providing the new starting point to project forward.
Weekly / monthly Cashflow Forecast review
- Compare the completed period’s forecast figures with the actual cash movements, and revise the cash balance into the next period.
- Update upcoming periods’ forecasts in the light of more accurate estimates and changes in the business environment.
- Add future periods so that it becomes a rolling forecast.
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