Cashflow Forecasting

A Cashflow Forecast is a document that helps estimate the amount of money / projected income and expenses that you anticipate moving in and out of your business.  Cashflow forecasts typically cover the next 12 months, but it is also suggested to be used for shorter periods of time, so a rolling cashflow forecast over a 12 weeks period is a great way to continue good cashflow management.

If you don’t know what your cashflow projections are – how can you plan anything?

Legal – as a director or owner of a business you have a legal responsibility to ensure the business is not trading while insolvent (ie can’t pay its debts) – the only way you can be sure of this is to project your future cashflows and predict your bank balance.

Planning – When planning future changes to your business, you need to understand the financial impact of your strategic changes – do you have sufficient funds, will you have them at the right time, a cashflow projection will give you the information to make informed decisions.

Finance & Funding –  When you approach a bank for a loan, as well as previous accounts (if you have any) you will need to provide them with a cashflow projection.  This is really easy way to demonstrate that make you a good prospect, plan to repay the loan and that you are in control of your business.

Growth – growing businesses are particularly prone to cashflow problems.  You want to reinvest everything you earn into growing the business, but its important to look ahead and forecast what’s needed and what is prudent to spend. 

Seasonal – Cash Management – If your business is seasonal its even more vital that you manage your cashflow, to ensure that the busier months can over the quieter months. 

Some good ways to improve your cash position include:-

Deposits – If what you provide involves a lot of time and money before you can invoice – it maybe worth asking for a deposit – enough to cover your costs and then should the unfortunate happen and a customer does not pay you – at least your costs are covered.

Credit Terms – Why wait 30+ days to be paid.  Ask for payment within seven days of receipt of finished product/service – as long as your customers are informed at the beginning / in the terms and conditions and upon your invoices there is no reason why you should not get paid on time.   Or even better, if possible payment upon delivery/in advance!

Good Credit control – There inevitably will be a time when even with credit terms agreed and in place you don’t get paid on time.  Having a good credit control system in place is then vital:-

  • Invoice Sent
  • Statement Sent
  • Chase within 7 days – send copy invoices/statements/correspondence
  • Chase again – letter / email and phone call
  • Chase again – advising them that you may seek legal action if not paid within 7 days

Giving your clients 21+ days over and above the agreed terms is showing any court (if it goes that far) that you have been fair and given them plenty of opportunity to pay.

Don’t use your bank account! A lot of people look at their bank account as a way to determine if they have enough money to do what they want to do, but looking at your bank balance is not enough, because you just don’t know what’s coming up or what’s coming in.  Using a Cashflow forecast will help to predict future costs and when they are needed, to ensure the cash you have in your bank covers it. 

When doing a Cashflow forecast you will be looking first at:


The general day to day costs of running your business including (but not limited to);

Wages – If you are a Director or have employees Remember Income First for you – what do you need to take from the business to live

  • Rent / Rates
  • Stationery / Printing & Postage
  • Telephone / Internet
  • Advertising & Marketing
  • Legal & Professional
  • Bank Charges & Interest
  • Other Sundry Costs

You will also have Cost Of Sales – these are the costs that you need to be able to sell your product / service. Imagine a Pen – you can’t sell the pen without plastic and ink – but you can sell it without a telephone – so the plastic and ink are Cost of Sale and the telephone is an overhead.

The above items are part of the Profit & Loss so you can also work out what your potential tax will be (income less expenses = profit x % tax), but for Cashflow you also need to consider what is on a Balance Sheet that is money you will spend:- •

  • Loans
  • Drawings (if you are a sole trader)
  • Assets (equipment/furniture)

Doing a Cashflow forecast each month for 12 months allows you to project what you expect the costs to be each month.  But you should also do an Actual column – so once a month has past you can compare the actual with the forecast and then adjust your future forecasts accordingly – more than likely there will be higher or more costs than you expected.


victoria sharp

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