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Cashflow Forecast – Guide With Free Template

Business News

Why you need a cashflow forecast

A cashflow forecast can be invaluable.  Without cash, you have no business, so it is key that you know when cash is coming in and going out.  This helps you identify any potential shortfall, so you can plan ahead and take action.  Action may take the form of delaying investment in new equipment, asking suppliers to agree a payment plan or sourcing external debt finance.
When sourcing external debt finance, lenders will request a cashflow forecast as they want to understand your working capital cycle and the shortfall.  This allows them to agree a level of funding with you that is appropriate and affordable.

What period should my cashflow forecast cover?

There are no hard and fast rules on this, it will depend on why you are preparing the forecast in the first place.  You should consider whether you need a detailed, weekly, short-term forecast for the here and now and/or a less detailed, longer term, strategic cashflow forecast.

Whatever period your forecast covers, it is important to review it, extend it and update it regularly, both for actual cashflows that have happened and for any changes in future cashflows.  Examples of the latter may be when a customer notifies you they are terminating a contract which will mean a loss of income and related costs, or perhaps some unexpected capital expenditure you have to incur.  

What to include

A cashflow forecast needs to include all types of bank and cash receipts and payments.  A good starting point for this is to review your bank statements – this will help you identify regular receipts and payments and also give you an indication of what the levels of weekly/monthly customer receipts or supplier payments are as a basis for a forecast.

Receipts and payments may be annual, monthly or ad hoc.  Examples of annual payments could be subscription fees or corporation tax.  Monthly payments will include rates or phone bills.  The ad hoc receipts and payments are more difficult to identify, but may include amounts linked to certain customers, projects (e.g. grant income), business growth (e.g. investment in equipment) or dividend payments.

How to use the cashlow forecast template

  1. Decide whether you want to prepare your forecast on a monthly or weekly basis (or both!) and select the correct tab in the template.
  2. Add additional columns if you want to extend your forecast out for a longer period of time.
  3. Enter the opening balance from your bank statement into cell C6 (highlighted yellow).
  4. Input your receipts and payments alongside the correct description and in the relevant column.
  5. The closing balance for each month or week will calculate automatically and be carried forward to the next month or week.
  6. Review the cashflows to understand where you have potential shortfalls.

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