What Is a Cash Flow Forecast?
A cash flow forecast is an estimation of the money a business expects to receive and pay out over a certain period of time. Typically a plan for a twelve month period, a cash flow forecast will help you:
- Estimate how much you expect to make.
- Estimate how much you expect to spend.
- Understand when money will come in and go out of your bank.
An invaluable plan for companies of all shapes and sizes, a cash flow forecast can play an instrumental role in helping you to make important financial decisions for your business.
What’s included in a simple cash flow forecast?
Before you begin making a cash flow forecast, it’s important to remember that the more time you try to account for, the less accurate your forecast will be. A cash flow forecast covering anything up to twelve months is usually advised.
Part 1: The sales forecast
This is a list of everything you plan to sell (services/products) and how much you’re likely to make each month. If you’re not sure where to start, try the following:
- Look at last year’s figures and see if there are any trends, month by month.
- If you don’t have previous figures available, think about seasonal trends. For example, are you likely to sell more products in the run up to Christmas? Will business be quiet during the summer holidays?
- Do you have any plans to expand your services or reach out to prospective clients over the upcoming months?
Part 2: The profit loss forecast
This is a list of your sales forecast against your overheads. Beneath your monthly sales forecast, list your expenditures as they occur each month, covering everything from product development to administration costs. You’ll want to consider:
- The materials, packaging and shipping/selling of your products.
- Office/workshop and transport costs.
- Staff salaries.
- Marketing elements such as websites, business cards, advertising.
- Administration costs like accountancy fees and internet charges.
Part 3: The cash flow forecast
This is a list of any non-sales income (such as loans), which you can combine with your monthly sales figures. It is then possible to calculate the money that comes in and the money that goes out every month – and ultimately understand your monthly cash flow.
How to use your cash flow forecast
With an overview of the money coming in and out of your business every month, you’ll be able to make more informed business decisions – whether that’s taking on additional staff members for busy periods or choosing when to stop shop for a holiday.
Empower your business with financial knowledge
At UWM, we’ve been helping Leeds-based businesses take charge of their finances for over 30 years. If you would like to find out how our personalised one-to-one service, proactive business advice and Cloud accounting expertise can help you take charge of your company’s finances, get in touch with our friendly team today. Simply call 0113 231 0202 or use our convenient online contact form.