Close this search box.

7 Steps to a Cashflow Forecast

More than ever before, it is imperative that you have a handle on your business’ assets, its liabilities and how the coming months of its operations will affect the net position of the business. It’s an obvious priority to know where you are heading, but it is often dismissed because of a sheer lack of time to be proactive with the data available to your business.If you don’t know what you are up against, how can you expect yourself to make the best possible decisions for your business? Don’t wait for a potential investor or lender to ask you for what you should already have at your disposal…

Building a forecast for your business involves a good understanding of the conditions that it expects to face in the coming months while considering its expected reaction to that set of assumptions.

More specifically, cashflow forecasts are crucial to ensure that your business is solvent. As a business owner, you need to understand the cash cycles and how they may change during a given year.

You can also extend this exercise to create projections of how the business may react to specific variables prone to change in the coming months. This will allow you to pivot your business and head in the right direction.
Here are some key starting points for building your business’ cashflow forecast/projections:

  1. Determine your current cash position
  2. Identify your expected cash inflows for the next few months (i.e., you can start by building a 4-month cashflow forecast/projection or aim for a full 12-month cycle). As a basis, you can use your historical cash inflows for similar months in the previous fiscal year:
  • Include any new expected business
  • Exclude any lost business
  1. Identify your current accounts receivable and factor in how fast they usually turn over into cash:
    • Plan for expected delays due to current economic conditions
    • Identify any “at-risk” accounts that may not be collected, or not collected as quickly, and then adjust accordingly
  2. Identify your current accounts payable and factor in how fast they normally turn over, and consequently decrease your cash, as disbursements.
  3. Incorporate the disbursements from any scheduled debt repayments (principal and interest).
  4. Factor in your future commitments (that would not present themselves as liabilities, but that are expected to be incurred in the foreseeable future).
  5. Incorporate all other operational cash outflows, including purchases, salaries, rent, utilities, supplies, maintenance and repairs, insurance, telecommunications, marketing expenses, tax bills/instalments, and other recurring monthly expenses.
    • Use your income statement as a guiding factor

Once you have outlined your cash inflows and outflows over the coming months, you will have a canvas to plan your cashflows quickly and more easily for the future.

A similar exercise can be performed for your income statement and balance sheet forecasts and projections. These involve the same type of approach, but of course do not contain the same information.

Once you have your forecast and/or projections, you can add it to your accounting software/platform to analyze your actual performance, month to month, in comparison to what you had budgeted for.Should you require further information about forecasting and projections, or how it can help your business safely navigate through difficult times, please do not hesitate to contact us.

Spread the word:


Featured posts:

Get FL News:

All Categories

Related Articles