Running a successful Cash Flow Forecast will:
Cash Flow forecasting FAQ’s
As explained in the question above, cash moves into and out of the business at various times. A Cash Flow Forecast is a report that lays out when cash will come into and out of the business.
Effectively you are forecasting what will be your bank balance at any given time in the future. It helps you to see the ‘peaks and troughs’ in your cash position, so you can fix the troughs before they occur.
Usually it’s done on a monthly basis i.e. you note the opening bank balance at the start of the month, plus cash coming in, less cash going out and the resulting bank balance at the end of the month. You can do it for as many months as you like and you will be able to see what should be your bank balance well into the future. Many people do the forecast on a spreadsheet or there are many apps you can use.
Once you’ve put it together, it doesn’t end there! You can work with the numbers to fix any issues, such as a negative balance, if you don’t have an overdraft in place. You can speed up payments from customers, slow down payments to suppliers, inject some of your own funds or borrow externally etc.
You need to know:
- The correct opening bank balance. This isn’t just the balance that’s on your bank statement, but the reconciled balance, which takes into account any unpresented transactions, such as transfers in and out that haven’t hit your bank account yet.
- Funds coming in
- How much is owed to you by customers that you give terms to pay. You will need to factor in a timeframe for these to be paid.
- Future expected
- Sales and what is the expected time customers will take to pay.
- Loan funds and interest
- Tax refunds/grants/subsidies
- Shareholder/Investor funds
- Sale of assets
- Funds going out
- How much you owe suppliers that give you terms to pay. You will need to factor in a timeframe for paying these.
- Future expected
- Expenses e.g. rent, wages, advertising etc.
- Cost e.g. goods to sell, labour and materials on jobs
- Taxes due
- Loan repayments and interest payments
- Capital expenditure e.g. equipment
Cash Flow is the term used to describe the activity of cash moving in and out of the business. For example cash coming in from sales, loans, interest etc. and cash going out e.g. expenses, taxes, dividends etc.
Cash Flow Forecast is a report that shows the movement of cash into and out of the business, as well as the opening and closing bank balance each day, week, month etc. The Cash Flow Forecast is probably the most important financial management tool in any business. It sets out clearly where the Cash Flow issues will be in the future, which provides an opportunity to deal with it well in advance.
Sometimes in business the movement of cash can get quite confusing… The bank balance looks OK but you’re never really sure how much of it is yours. There’s taxes to pay, outstanding supplier invoices and monthly charges. A Cash Flow Forecast plots it all out in black and white for you to see exactly what will be your cash position at the end of each month, week or day (if cash is really tight). It eliminates the guesswork so you can feel confident about your cash position. Once you’ve plotted it all out, it puts you in a position to then plan a strategy to keep it under control i.e. when to speed up money coming in and when to slow down money going out.
Re Testimonials – let’s please use Safa Glass, Power Systems Consultants and Flairs Jewellery.
Download your FREE Cash Flow Forecast Template
If you want to be proactive about Cash Flow management and eliminate the ‘peaks and troughs’ and headaches, download your FREE Cash Flow Forecast Template here.
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Warwick Glendenning, CEO
Power Systems Consultants Group
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Lesley, Peter & Joshua Turner, Directors
Before engaging CFO On-Call, the bank wouldn’t support me, so debtor financing was my only option. CFO On-Call set up our new management reporting and forecasting, and the bank changed their mind. Since then, we have grown total revenue by 17%, increased gross margins from 17% to 37% and improved debtor days by 36%. We’re going from strength to strength!
Peter Deverall, CEO
Safa Glass, Brisbane