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How to Create a Cash Flow Forecast in 4 Easy Steps

Step one

Enter your opening bank balance, which reflects the amount of cash you have on hand.

Step two

Identify the money coming into your business over the next 12 months (most forecasts cover the year ahead). This could be credit sales you’ve already made, any forward orders you’ve received and projections of future sales based on past performance or market research. You might adjust these slightly by increasing or decreasing them by 10%, or a similar percentage, to allow for anticipated growth or tighter market conditions.

Step three

Record the expenses you’ll need to pay each month. This will include your overheads or fixed costs, your variable or operating costs, any one-off purchases and annual payments, plus any money you’re likely to draw from the business.

Step four

Add your income to your opening bank balance and subtract your expenses. This is your closing bank balance each month – repeat for the year and you’ll have an appreciation of your business’s likely cash position for the year ahead.

If your forecast bank balance at the end of each month is positive, you have sufficient cash flowing into your business to meet your expenses. If your bank balance is negative, you’ll need to source additional finance to keep your business running, and look at ways to increase sales, reduce costs, or both.

The hardest part of creating a cash flow forecast is working out accurate income and expense figures for the months ahead. Obviously, the more accurate these figures are, the more accurate your forecasts will be (and the business decisions you base on them).

For your forecasts to continue to be of use, you need to update them based on your actual business performance each month. Replace your forecast figures with the actual figures for the month and make adjustments to the next few months’ forecast figures if it appears, based on reality, that your projections were either overly optimistic or pessimistic.

Ready to try it on your own?

Go to our to download the free cash flow forecast tool


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