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How to design a cash flow forecast for your business

Posted on: August 14, 2012 | Author: ATB Business & Agriculture

It's very important that you understand your business cash flow. The way that you manage your cash flow has a significant impact on the health of your company. An up-to-date cash flow forecast is one of the tools that you'll rely on to help you to understand and streamline your cash flow cycle.

A cash flow forecast helps you to predict your business' cash flow over a period of time and understand the cause and effect of your business decisions on your finances. It also helps you to identify potential cash shortfalls, or cash flow gaps, before they happen—so you can plan for them.

The easiest way to create a cash flow forecast is to use a spreadsheet. You can download our Cash Flow Forecast Template, or create your own. 

6 categories to include in your cash flow forecast:

  1. Time periods. This is typically shown in months, but you could also use weeks, or even days, if it's useful to you. Include your time periods as column headings at the top of your spreadsheet.
  2. Sales. Create rows for the following:
    • Sales in units. Estimate the number of units that you will sell for that time period. A unit may represent hours or days for service offerings, or number of products. You can include more than one row if you sell various products and services that sell at different rates.
    • Sales in dollars. Try to set up your spreadsheet so that it calculates the dollar amount in sales for the number of units that you sell in that time period. If you can't do this, you'll need to calculate the amount and enter it yourself.
    • Credit terms. If you don't receive payment from your sales immediately, identify the percentage of your receivables that you collect immediately, within 30 days, within 60 days, or more. Set up calculations to determine when you will actually collect money for the sales that you made each month.
  3. Operation Cash Inflow. Create rows that show all of your money coming in. Ideally, these rows will reflect your credit terms and automatically populate based on the sales information that you entered. Now you really get an idea of how your credit terms affect your cash flow.
  4. Cash Outflows. This is a long list of rows that represent all of the expenses that you need to pay over the forecasted period. Here are some things that you may need to include on your list:
    • Accounting & bookkeeping costs
    • Advertising, marketing, & promotion
    • Automotive
    • Bank charges
    • Business licenses
    • Communications
    • Dues & subscriptions
    • Interest on long-term debt
    • Insurance
    • Legal fees
    • Loan repayments
    • Office supplies
    • Materials & inventory
    • Rent or leasing costs
    • Repairs & maintenance
    • Taxes
    • Travel
    • Utilities
    • Wages (owner)
    • Wages & benefits (staff)
    • WCB
  5. Finance & investment inflows and outflows. This is where you include different financing and investment options to offset cash flow gaps or make use of excess cash on hand. This is also where you include your owner's draw, which is cash paid to you in addition to your wages. This should give you a good picture of all cash inflows or outflows arising from financing or investing over the forecast period.
  6. Cash summary. Include four rows that give you an overview of your cash for each month. Set up the spreadsheet formulas to populate these rows based on the information that you've already entered. For each of your time periods, include:
    • Starting cash
    • Net cash from operations
    • Net cash from finance & investments
    • Net cash change in time period

While every business is different, this should give you a great starting point to set up your cash flow forecast.

Other articles you may be interested in:

What is cash flow, and why should I care?
3 easy ways to tighten cash flow gaps

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