7 Tips for Building a Great Cashflow Forecast

One way to understand your cash flow is to build a tool to track all the money flowing in and out of your business…a great cash flow forecast.

By Paul Kuchta  |  30 Sep 2020

One way to understand your cash flow is to build a tool to track all the money flowing in and out of your business…a great cash flow forecast.

A great cash flow forecast helps you to:

  • understand what the payment cycles look like in your business
  • plan for any future ups and downs
  • identify areas that require focused attention
  • reduce the number of times that business owners wake up at 3 am questioning where the money is!

The 7 steps in building a great cash flow forecast are:

1. Work Out Your Opening Balance

List out all your current sources of liquid cash such as cash at bank, bank overdrafts, available credit on loans, available credit on credit cards.

TIP: Log in to your internet banking and take a screen shot or collate your bank statements.

2. Identify your sources of cash receipts

Customer Sales, Debtor Receipts, Sale of Assets.

List these in detail and identify the day of the month that they are expected to clear in your bank account.

TIP: Compare the expected receipt date of cash to your payment terms. You might find that clients and customers are not adhering to your specified payment terms. We will discuss this in a latter session.

3. Total Cash Inflow

Total the above amounts up on a daily, weekly or monthly basis. The greater the detail, the better.

4. Identify your cash payments

From your accounting software, list out every single expense item that you pay. For example, stock purchases, advertising, telephone, rent etc.

Further, review your bank statements, credit card statements and accounting software as there will be payments that leave your bank account that do not show up in your expenses items. Such as, tax payments, BAS payments, loan repayments.

TIP: Don’t forget to add GST to your expenses.

5. Total Cash Out Flow

Total the above amounts up on a daily, weekly or monthly basis. Again, the greater the detail, the better.

6. Net Cash Movement

Subtract Total Cash Outflow from Total Cash Inflow, this will be your net daily, weekly, monthly positive or negative cash flow for that period.

TIP: Use colours to flag and identify positive and negative movements. Green is Good, Red is Bad.

7. Closing Balance

Subtract your Net Cash Movement from the Opening Balance and that will indicate your current or forecast position for the period.

TIP: Try and identify which bank account, overdraft or credit card this closing balance will impact.

Some accounting programs provide you tools to prepare cash flow forecasts and you should look to explore those options. Ultimately a well-built spreadsheet provides the same result.

Once you have a reliable tool to identify and accurately forecast the cash flow of your business, you can then identify and work on the key levers that can be pulled to improve your cash flow position.

For specific cash flow tips that can help your business through to the other side of COVID-19 click here.

If you’d like some guidance from our business accountants to help with your cash flow forecasts and plans, or if you have any questions, please contact your local Kelly+Partners office today. 

You can also request a call back at a time that suits you.

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