Today I’ll be talking you through how to set up a simple cash flow forecast
So what is a cash flow forecast? It has two parts – incoming cash and outgoing cash. I will talk you through the key elements.
Firstly decide if you need to monitor cash on a weekly or a monthly basis.
I advise our clients to set up a weekly forecast, because so much can change in a month and a weekly forecast gives you greater insight.
If your budget can not stretch to having a piece of software that manages cashflow, then just use a spreadsheet.
So let’s begin….
Create and label a column for every week.
Now we’ll look at cash coming in. This is recorded in the top part of the cash flow forecast.
Using your aged debtor report or the list of outstanding invoices, work out how long, after invoicing, it usually takes for each customer to pay you. You may need to go back over your records to be able to work this out.
If there are any customers with large balances owing, put them in a separate row on the forecast.
Enter the funds due in from your customers or clients in the columns that you think you will receive the funds in.
If you have recurring invoices or invoices that are raised each month for the same amount you can create a row for these as well.
Do you have any orders or quotes that you have not invoiced out yet?
Work out when you are likely to fulfil these orders or complete the work, and also when you will be sending out your invoice (preferably by email, because it’s quicker).
Then calculate when you’ll likely get paid for these orders. Create a new row and add the amounts you’ll get paid in the right week’s columns.
Anyadditional sources of income? Say a bank loan.
Yes, you’ve guessed it… add another row and add the amounts to the relevant columns.
Now, add up all your income.
This‘ll show you how your income will come in every week over the next few months.
Now for the second part of your cash flow forecast – your outgoing cash and expenses.
Use your aged creditor balances or a list of supplier invoices that are due for payment, and work out when you will pay them.
Create a new row and add these figures in the appropriate column in your forecast.
Are there items that you have ordered or suppliers that have not invoiced you yet?
Create a new row for these and enter the amounts in the columns where you will most likely pay them.
Do you have any standing orders and direct debits going out of your account?
Look at your bank statements or online banking to see what came out of your account and when.
Create a new row for each standing order and direct debit in your cash forecast and note what date each leaves your account.
Be careful here. Check that you aren’t double accounting – some of your supplier invoices might appear on your aged creditors report but could be paid by Direct Debit or Standing Order.
Any credit cards or loans?
Again create a row for these and put the amounts in the correct column.
Now for payroll. Put the net pay figures, that is the amount that gets paid to the employee, in when they go out of your bank account.
The PAYE and National Insurance Contributions figures need to go in between 19th to 22nd of the month, depending on how you pay.
And don’t forget HMRC. Enter any corporation tax and VAT in the right column too.
Any other outgoings?
Bank loan repayments? Yes, time again to create a new row and enter the figures.
Now calculate the column totals for your outgoings
Obviously there will be a lot more entries on your final cash flow forecast both for income and expenses but this should give you the idea of how to put a simple one together.
Finally, the calculation part. Include a row called Opening Balance.
Enter the ‘Opening Balance’ from your bank statement. Then, beneath, include a row called ‘Closing Balance’.
Now here’s for the most important bit:
Your closing balance will be as follows, for each column:
Closing Balance = Opening Balance + Incoming Cash – Outgoing Cash
Carry forward your Closing Balance for each column into the Opening Balance cell of the next column. Then copy your formulas across.
Then ongoing, you need to manage your cash flow and up date it, as money comes in and out and add more columns as you go.
Personally I think a 3 month weekly forecast works really well for most businesses.
This example is of a very simple cash flow forecast. As I said earlier you may decide to use a software package for calculating your cash flow forecast if budgets allow.
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Tina Marie Parker, business advisor, trouble-shooter and turnaround expert, has been helping businesses for nearly 30 years. From start-ups to succession planning. From companies going through rapid growth to companies desperate to see some growth. She helps them thrive and survive. Great business advice and hands-on support for your organisation, getting the desired results, fast