business plan cash flow forecast

Cash Flow Forecasting: A How-To Guide (With Templates)

Janet Berry-Johnson, CPA

Reviewed by

May 30, 2023

This article is Tax Professional approved

Most small business owners just want their accounting done so they can focus on doing what they love. But tracking and forecasting cash flow—despite the time and effort required—is essential for starting, operating, and expanding a business.

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In 2018, CB Insights analyzed 101 failed startups and found that running out of cash was the second most common cause of failure, impacting 29% of businesses.

To avoid that fate, you need a cash flow forecast to help you estimate how much your cash outflows and inflows will affect your business.

What is a cash flow forecast?

A cash flow forecast (also known as a cash flow projection) is like a budget, but rather than estimating revenues and expenses, it estimates cash coming in and going out based on past business performance.

It’s not uncommon for a business to experience a cash shortage, even when sales are good. This usually happens when customers are allowed to pay after the product or service is delivered. In cases like these, a business owner must plan how they will cover costs before receiving the payment.

For example, say Hana Enterprises ships $50,000 worth of security products to customers in January, along with invoices that are due in 30 days. The company will have $50,000 of revenues for the month but won’t receive any cash until February. On paper, the business looks healthy, but all of its sales are tied up in the accounts receivable. Unless Hana Enterprises has plenty of cash on hand at the beginning of the month, they will have trouble covering their expenditures until they start receiving cash from clients.

With a cash flow forecast, you ignore sales on credit, accounts payable, and accrued expenses, instead focusing on the revenue you actually expect to collect and the expenses you actually expect to pay during a given period. You can also use the information provided on past cash flow statements to estimate your expenses for the period you’re forecasting for.

( If you just want to dive into cash flow forecasting, check out our free cash flow forecast template . )

The benefits of cash forecasting

Cash forecasting may sound like something boring that accountants do in big companies. Not so! It’s absolutely essential for every single business. Here’s why:

• It helps you identify potential problems. Cash forecasting can help you predict the months in which you’re likely to experience a cash deficit and make necessary changes, like changing your pricing or adjusting your business plan.
• It decreases the impact of cash shortages. When you can predict months in which you might experience a cash shortage, you can take steps to plan for them. You might save more in months where you have a surplus, step up your receivables collection efforts, or establish a line of credit with your bank to guarantee enough working capital to last the period.
• It keeps suppliers and employees happy. Late payments and missing paychecks damage your reputation with suppliers and employees. When you can predict how much money you’ll have on hand in any given month, you can confirm that you’ll be able to meet your payroll obligations and pay suppliers by the due date.

Free cash flow forecast template

To make this a lot easier, we’ve created a business cash flow forecast template for Excel that you can start using right now.

Access Template

The template has three essential pieces:

• Beginning cash balance. This is the actual cash you expect to have on hand at the beginning of the month. It should include bank accounts, PayPal, Venmo, anything you use that’s currently holding just business funds. This information can be found on your balance sheet .
• Sources of cash. These are all of your cash inflows each month. It can include cash sales, receivables collections, repayments from money you’ve loaned out, etc.
• Uses of cash. This is every expense your business may incur, including payroll, payments to vendors, utilities, rent, loan payments, etc.

Here’s an example of a completed cash flow projection for a three month period:

Hana Enterprises, Inc.

Cash Flow Projection

January to March 2022

As you can see from the example above, Hana Enterprises expects to have a cash shortage in March. This results from a negative net cash flow (when more cash goes out than comes in). Knowing that information ahead of time, the company can take steps to prevent the shortage from occurring.

Hana Enterprises has several options to avoid this shortage in March. They might secure a line of credit from the bank, purchase fewer computers in February, negotiate longer payment terms from vendors, contact late-paying customers to speed up the collection of receivables, or take other cost-cutting measures to reduce their overhead expenses.

When you’re ready to get started, download your copy of the cash flow forecasting sheet here .

How Bench can help

Use Bench’s simple, intuitive platform to get all the information you need to project your cash flow. Each month, your transactions are automatically imported into our platform then categorized and reviewed by your bookkeeper. Bench helps you stay on top of your business’s top expenses so you can make informed budgeting decisions on the fly. Explore our platform with a free demo .

Tips for improving your cash flow spreadsheet

Keep in mind: a cash flow forecast isn’t something you create once a year and never look at again. It’s a living, breathing business tool you should review and update on a monthly basis.

Though projections are helpful, they can’t perfectly predict the future. As the months pass, you should expect to see that your projections aren’t quite matching up with your actual results. That means it’s time to re-run your forecast to take into account these differences.

To improve the accuracy of your cash flow worksheet, consider the following:

• Account for extra pay periods. If you pay employees bi-weekly, make sure your projection takes into account any months with three payrolls.
• Remember annual payments. If certain insurance policies, subscriptions, or other expenses are paid annually rather than monthly, be sure to include them in your spreadsheet.
• Remember estimated tax payments. For most calendar-year businesses, estimated tax payments are due on April 15th, June 15th, September 15th, and January 15th.
• Don’t forget about savings. Try to allocate a portion of any cash surpluses to save for lean months.
• Identify seasonal fluctuations. If you’re expecting a period of time with lower sales, make sure your forecast reflects this so you can have enough cash on hand to ramp up when business picks up again.
• Don’t forecast too far out. Creating a rolling 12-month cash flow forecast that you update at the end of each month can help you identify issues before your business faces financial troubles, but don’t try to forecast more than 12 months out. The longer the reporting period you want to forecast, the more likely you’ll end up spending a lot of time creating a cash flow projection that doesn’t provide any useful information.

Your cash flow forecast is key to good cash flow management . Try to account for all cash sources and uses in your projection and maintain an emergency fund or backup plan to ensure you don’t get sidelined by slow-paying customers or unexpected expenses. When you do, this simple but valuable tool can help you keep an eye on cash and ensure you don’t compromise growth or put your business in jeopardy.

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How to Create a Cash Flow Forecast, with Templates and Examples

By Andy Marker | August 26, 2020 (updated October 16, 2021)

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A cash flow forecast is vital for any company to assess its overall health, and to ensure it will have the cash necessary to pay the bills. This article includes expert advice on creating a basic cash flow forecast.

Included on this page, you’ll find the benefits of cash flow forecasts , the methods to create a cash flow forecast , downloadable templates , and an example cash flow forecast that shows why having a forecast is so critical.

What Is a Cash Flow Forecast?

A cash flow forecast provides estimates of a company’s future revenue and expenses. The forecast shows the cash a company will have on-hand at various future dates and is a vital financial document for any company.

In a cash flow forecast, “cash” refers to funds that are easily available and spendable — this includes money in checking and savings accounts, as well as other funds that you can quickly convert into cash to spend.

A simple cash flow forecast might take a few hours to create, and then about an hour to update, which you should do periodically.

Here are some primary ways a cash flow forecast can add value to your company:

• Liquidity Management: The forecast provides insight into how much cash a company will have on hand to pay upcoming bills. 
• Interest and Debt Reduction: Understand when your company can use available cash to pay down debt (this can reduce the credit card or loan interest the company has to pay).
• Half-Year or Full-Year Reporting: Gain insight into what your company’s six-month and full-year financial reports will look like.
• Overall Performance Gauging: Use the forecast to help determine whether revenue and cash flows are above or below expectations. These assessments can guide you in making any necessary changes.
• Long-Term Planning: Longer-term forecasts can help with your company’s three-year planning (or longer).

Cash Flow Forecast Challenges and Pitfalls to Avoid

Cash flow forecasting can present challenges if not done correctly. Pitfalls to avoid include using imprecise financial numbers or failing to perform regular cash flow forecasts at all.

Here are details on those and other challenges and pitfalls to avoid:

• Using Imprecise Financial Figures: In 2014, Kyriba, a company that offers cloud-based treasury management software, surveyed more than 200 financial professionals at companies. The survey found that only 32 percent of these employees thought their cash flow forecasts were mostly “accurate.” About 53 percent said their forecasts had “significant” variance. Eight percent said their forecasts were “very inaccurate, with major variances.”About two-thirds — 65 percent — of those respondents said the primary reason for the inaccuracy was they didn’t have the needed “visibility” into the financial numbers that the forecast needed and used. Sometimes this occurs because of poor communication between the departments who supply figures and the department creating the forecast. So, when the financial experts don’t have solid numbers, they make imprecise guesses, which leads to forecasts that can be significantly wrong.
• Having Difficulty in Forecasting Accounts Payable and Accounts Receivable: Companies need solid estimates of these items on the balance sheet in order to create a strong cash flow forecast. 
• Being Overly Optimistic about Future Revenues: We all believe that sales will improve in the next quarter, and improve even more in the quarter after that. But a cash flow forecast is useless if it’s not based on hard realities. Be accurate and realistic about your data — using rosy scenarios for revenue will only cause major problems when those forecasts don’t materialize. Worse, you won’t have money to pay your bills.
• Not Properly Documenting Your Current Financial Activities: Past revenue and expenditures help you accurately predict future cash flow.
• Not Performing a Cash Flow Forecast at All: Some of the above problems may make you avoid performing cash flow forecasts. Or, you may think they are unnecessary because your company is performing well and isn’t showing obvious cash flow problems. However, every company should do cash flow forecasts — even the most successful companies have cash flow variances that can cause problems if they aren’t addressed.

Potential Effects of Not Performing Proper Cash Flow Forecasting

Companies that don’t periodically perform cash flow forecasting often experience cash flow surprises. Those occurrences can cause problems in paying bills or require companies to find cash through financing with high interest rates.

In fact, these problems often cause more than inconvenient surprises. In 2018, a CB Insights study that analyzed 101 startup failures revealed that running out of cash was the second most common cause of business failure — about 29 percent of businesses failed for that reason.

Benefits of a Cash Flow Forecast

Cash flow forecasts provide a number of benefits. They help a company plan for periods when cash will be low, or when it might need financing. Forecasts also offer insight into the effects of sales programs or other business changes.

Here are some benefits of a cash flow forecast:

• Manage Cash Flow: The forecast will show the times when your company will experience surpluses or shortages of cash.

• Evaluate the Value of a New Project: A company may want to create a project cash flow forecast to analyze the revenues and costs from taking on a specific project or job. A project cash flow forecast also helps companies plan for major expenses related to a project. Construction companies and marketing and advertising agencies often create project cash flow forecasts. Learn more about project cash flow forecasts by reading this article.
• Mitigate Obstacles: A forecast can allow you to make adjustments and create contingency plans to deal with significant cash flow change.
• Spot Issues with Customer Payments: A forecast can highlight times at which customers are significantly or habitually late in making payments.
• Keep Suppliers and Employees Happy: Forecasts generally help companies avoid surprising cash shortfalls, which translates to on-time salaries and payments to employees and suppliers.
• Enhance Understanding of Customers and Suppliers: Your company can analyze how to engage customers that repeatedly pay late or suppliers that might offer discounts for upfront payments.
• Boost Profits: Forecasts allow you to track cash flow continually, which can lower borrowing and other costs, and keep your company profitable.
• Helps You Plan for Expected Sales: A forecast helps you plan for expected sales decreases or increases.
• Prepare for Expected Expenses: Forecasts help you plan for expected increases in expenses during a future period.
• Plan for Investments: A forecast can show when you’ll have surplus cash flow, so you can make investments to help your business grow. Menken says it’s vital “to forecast and have an idea of your cash flow, and whether or not an investment now is a good idea, or a growth strategy is a good idea or not.”
• Provide Insights into the Cost of Growth: A forecast will show you the future costs of investments in your business, from new employees to new equipment. Use that data to  analyze whether the investments are worthwhile.
• Reduce the Cost of Capital: A forecast indicates when you will run low on cash, so you can prepare for lower-cost financing.
• Gain Confidence in Your Financial Systems: Regularly scheduled cash flow forecasts will inform your company where your financial systems are working well or need tweaking.

How to Forecast Cash Flow

At its most basic level, a cash flow forecast assesses your organization’s current cash, and then forecasts cash inflows and outflows for a number of periods into the future. The forecast shows expected cash on hand at the end of each period.

Use this cash flow forecast template to provide basic details about your company’s projected cash flow. The template includes sections to list beginning and ending cash balances, cash sources, cash uses, and cash changes during the month. These details provide an accurate picture of your organization’s projected month-by-month financial liquidity. Ultimately, this template will help you identify potential issues that you must address in order for your business to remain on sound fiscal footing. 

Download Cash Flow Forecast Template

Excel | Smartsheet

You can find other cash flow forecast templates for specific situations by reading “ Free Cash Flow Forecast Templates .”

5 Basics Steps to Forecasting Cash Flow

There are basic steps that can help with your cash flow forecasting, such as assessing some past financial numbers. You’ll want to make projections on future revenue and costs based on those numbers, as well as other factors.

Here are some basic steps that can help your cash flow forecasting:

• Assess Past Financial Numbers: Take a look at your current and past cash flow statements. (You can learn more about cash flow statements and the formulas you need by reading, link for cash flow-formulas piece.) Review sales figures and overall revenue for the past couple of years, and assess basic expenses for those two years. This time period can give you a good sense of what to expect, including seasonal fluctuations and long-term trends.
• Factor in Some Basic Assumptions for the Future: These assumptions might include the expected change in the consumer price index, wage increases, and seasonal sales. 
• Estimate Revenue: Most of these numbers will come from weekly or monthly sales. Include any price increases (from both your company and its competitors), as well as other external factors. Then, add any non-sales revenue, like tax refunds and asset sales.
• Include Your Receivables Cycle: As part of (or connected to) your revenue estimates, factor in how much sales revenue will be paid in cash and how much will be paid over time. Don’t assume that all sales revenue will come in when your customers’ payments are due. Use payment history to determine what percentage of sales revenue will arrive on time and what percentage might appear in subsequent months.
• Estimate Likely Costs and Outflows: Using your past costs as a guide, estimate likely future expenses. Also include other expected outflows, including those for tax payments, loan payments, and purchase of assets.

Direct vs. Indirect Cash Flow Forecasting

You can perform a cash flow forecasting using either the direct or indirect method. The direct method , ideal for shorter periods, identifies all likely future inflows and outflows. The indirect method , which is best for longer terms, uses forecasts from other financial statements.

You can also use the direct or indirect method to generate cash flow statements.

Tools that Can Help with Forecasting

If you’re just getting started creating a cash flow forecast, a spreadsheet may be the only tool you need. However, as you continue to perform them, you might prefer using software that can automate the process. 

• Cash Flow Forecasting Software: Specialized software can help with cash flow forecasting. One option is LivePlan, which allows you to input financial figures, including sales, expenses, and other numbers for your business. A user can then alter projections to explore various scenarios and see how they affect cash flow and available cash.
• Creating a Spreadsheet: Menken, from The Art of Service, says a company can build a simple spreadsheet that has entries for basic inflows and outflows of cash, including rent, utilities, and wages. Include dates when you pay these bills and other less frequent outflows. “That is how you start to build your cash flow forecast,” she says. “Every day, you complete the spreadsheet for the day with the actual numbers, until you start to get a feeling for the cadence of the business. Do your clients pay on a certain date every month? Do you have subscription sales where you can predict when the money comes into your account? Start to pre-populate your spreadsheet for the next three to six months, until you’re confident it is giving you the correct information.” Then, she says, you can start working on a longer-term forecast.

Why Are Cash Flow Forecasts Important to Small Businesses?

Cash flow forecasts are important for any company, but they are especially critical for small businesses, which may have fewer cash reserves and less access to borrowing money.

• Fewer Cash Reserves: Larger companies may have larger funds of cash, but smaller companies may generally have just enough money on-hand to pay their normal monthly expenses. A month of unexpected costs can deplete those reserves to zero.
• Less Access To Credit: When cash begins to decrease, larger companies likely have more access to credit — from banks and investors, or through other means. Small businesses have fewer options for credit. For example, loans from the Small Business Administration often require an extensive application process. A small business has the time to move through that process only if it’s been able to forecast its cash issues far in advance.

How to Manage a Cash Flow Forecasting Process

In all but the smallest of organizations, a cash flow forecasting process will involve gathering data from several people or departments. In larger organizations, a treasury or finance team will manage the process.

Here are a couple of keys to success for an effective cash flow forecasting process:

• Get Data from People and Systems: A forecast depends on finance systems and statements your organization has already created, and their accuracy. Employees within your organization who understand those systems and that data are also key.
• Employee Buy-In Is Vital: Employees must understand the importance of the cash flow forecast, and be enthusiastic about providing the best data so they can help create the best possible forecast.

Cash Flow Forecasting Best Practices

Experts recommend a number of best practices to create the most accurate cash flow forecasts. Top suggestions include looking closely at past financial numbers; paying attention to unusual costs that might occur; and updating forecasts frequently.

Here are some additional essential best practices:

Get Input from Key People: Employees who understand your company’s financial numbers integrally can provide important input.

Analyze Key Indicators, Like Sales Forecasts: Pay attention to how changes your company makes can affect revenue and thus, your cash flow forecast. For example, a sales strategy to reach a broader group of potential customers can change a forecast.

Understand that Cash Flow and Revenue Are Different: Revenue on your income statement represents what you’ve sold, but not what’s been paid for. So, revenue is not cash or cash flow, and you can’t treat it as cash.“  

You might have a million dollars in sales, then use that million-dollar figure in all of your forecasting calculations,” says Sherif Hassan, CEO of Capiform , which provides smaller banks with an online platform to help them analyze credit and provide loans. Hassan, who also is the Founder and Principal for Syh Strategies, a strategic consulting firm, explains that it's a huge mistake to think that way: that million dollars isn’t in your bank account yet. “That might be the number one reason people run out of money and go out of business,” he shares. “Sales is not cash.”

Look Closely at All Potential Inflows and Outflows: Start with your recent and current financial numbers. Next, consider future factors, like consumer confidence and inflation. Take into account how quickly customers are paying for your company’s services or products, and whether you’re taking steps to improve that speed of payment. And, acknowledge any variability on your costs to do business.

Prepare a List of ‘Other’ Cash Inflows and Outflows: This exercise will help you identify all possible inflows and outflows. Use this time to think about any unusual inflow or outflows — those that don’t occur monthly and may not even occur annually. These might include inflows like tax refunds, government grants, or cash from the sales of assets. Outflows might include new equipment, new benefits from employees, or lawsuit settlements.

Create and Test Various Scenarios: Changing some key variables in your cash flow forecast can help you see how that affects overall cash flow. What if you decide to spend $200,000 to invest in equipment to improve production? What if you add three people to your sales team to bolster sales, or pay for an outside service to collect bad debt? The results of those scenarios can help you decide whether to make certain investments and think about how to bolster cash in various periods.

Timing Is Everything: Cash flow and cash flow forecasting are of course supremely affected by timing. Timing includes the date customers pay you, the date you must pay suppliers, and the date you pay quarterly federal taxes. You must ingrain all of those cash inflows and outflows — both recurring transactions and rare ones — within the forecast.

Monitor Results and Make Adjustments: Whether you do cash flow forecasting every week or every six months, ensure that is informed by actual results. If you do a cash flow forecast monthly, look at your cash flow statement (based on actual results) and make the necessary modifications. 

Build in Variances: Many companies build variances into their forecasts to account for unexpected costs or other small changes in totals. Include an “other” category in expenses that accounts for a small extra percentage of total costs.

Determine How Far Out You Want to Plan: Some companies perform a cash flow forecast every six months. Many others do it more frequently — some even perform weekly cash flow forecasts. If you have predictable annual inflows and outflows, creating a forecast every six months might be sufficient. If you’re a new business, or experience a continual flux in sales and costs, weekly (or even more frequent) forecasts might be necessary.

Don’t Forecast More than 12 Months in Advance: Trying to forecast more than 12 months in advance has limited value. There are too many variables that are impossible to predict more than 12 months out. The forecast you create for 18 months from today will likely be inaccurate.Menken says that cash flow forecasts too far into the future are “always garbage in and garbage out. You’re better off doing a good quality [forecast] over a shorter time. Do that for a couple of short time periods, until you get really good at it. Then, push it out to six months.”

Continually Evaluate: You may decide to perform cash flow forecasts monthly or quarterly. What if circumstances with your company change? Don’t think of any cash flow forecast as written in stone until it’s time to do another. Continually evaluate your budget and any major adjustments. Then, create a new forecast when it makes sense.

Difference between Cash Flow Forecast and Budget

A budget shows expected revenue and expenses for an entire set period (often 12 months). A cash flow forecast shows actual inflows and outflows of cash when they occur — on a monthly, weekly, or even daily basis.

The cash flow forecast reflects actual cash being spent and cash on-hand. A budget outlines income and expenses based on when they occur — not when you receive the income or pay for expenses. A budget also serves as more of a comprehensive planning document, outlining goals for revenue and spending over a year, for example.

Variables that Can Complicate a Cash Flow Forecast

A number of variables in revenue or expenses can complicate cash flow forecasting. They may be somewhat common and only occur occasionally, such as every month or every quarter.

It’s vital to try to predict and account for the following variables in any cash flow forecast:

• Months with an unusual number of paydays for employees. When a company pays employees every two weeks, there are months with three paydays. If your company pays employees every week, there are months with five paydays.
• Seasonal peaks and valleys in sales.
• The need to hire seasonal workers.
• Insurance and other annual payments, which can cause discrepancies on weekly, monthly, or quarterly cash flow forecasts.
• Quarterly estimated tax payments, which cause issues on weekly or monthly cash flow forecasts.

Discover a Better Way to Manage Cash Flow Forecasts and Finance Operations

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When teams have clarity into the work getting done, there’s no telling how much more they can accomplish in the same amount of time.  Try Smartsheet for free, today.

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Preparing a cash flow forecast: Simple steps for vital insight

One of the questions we’re often asked by small business owners is, “how do I prepare a cash flow forecast?” It’s an important part of financial planning for any business. But, if you’re an entrepreneur or founder, you may not have an accounting or finance background.

It’s really simple to create your own forecast. And once you know how, it will become one of the most important pieces of insight into your business you have.

Why is a cash flow forecast important?

Cash flow planning is essential: you need cash in the bank to pay your bills. Staying on top of your cash flow will help you see if you’re going to run out of money - and when - so you can prepare ahead of time. Perhaps it will show you that you need to cut overheads, find new investment, or spend time generating sales.

On the flip side, you might be doing well, and you’re considering expanding into new markets, investing in new products, taking on bigger premises, or recruiting new staff. Having accurate cash flow projections will help you see if you can afford to take the plunge.

Four steps to a simple cash flow forecast

One option is to use free financial forecasting software online, which can help you plan ahead for the next week, 30 days, or six weeks. Or you can follow the four steps below to build your own cash flow forecast.

1. Decide how far out you want to plan for

Cash flow planning can cover anything from a few weeks to many months. Plan as far ahead as you can accurately predict. If you’re well-established, you might have a predictable sales pipeline and data from previous years. If you’re a new business, you might not have a huge amount of data - so the further out you go, the less accurate your predictions will be.

Don’t worry too much if you can’t plan far ahead. Your cash flow forecast can change over time. In fact, it should. As things change, or you get more exact estimates, you can update your plan.

2. List all your income

For each week or month in your cash flow forecast, list all the cash you’ve got coming in. Have one column for each week or month, and one row for each type of income.

Start with your sales, adding them to the appropriate week or month. You might be able to predict this from previous years’ figures, if you have them. Remember though, this is about when the cash is actually in your bank account. Put the figures in for when you know clients will pay invoices, or bank payments will clear.

Also remember to include all non-sales income, for example:

• Tax refunds
• Investment from shareholders or owners
• Royalties or licence fees

Add up the total for each column to get your net income.

3. List all your outgoings

Now you know what’s coming in, work out what you’ve got going out. For each week or month, make a list of all the money you’ll be spending, for example:

• Raw material
• Bank loans, fees and charges
• Marketing and advertising spend

Once you’ve listed everything you spend, add up the total for each column to get your net outgoings.

4. Work out your running cash flow

For each week or month column, take away your net outgoings from your net income. That will give you either a positive cash flow figure (you’ve got more cash coming in than you’re spending) or a negative cash flow figure (you’re spending more than you’ve got coming in).

You can then keep a running total, from week to week, or month to month, to get a picture of your cash flow forecast over time. Too many negative weeks might spell trouble, and you’ll need to do some forward-planning to make sure you can meet your commitments - e.g. paying salaries, loan payments, and rent. Equally a few positive months might signal that you’ve got money to expand or invest.

Jenni Chance

Senior Manager, Entrepreneurial & Private Business, PwC United Kingdom

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• Cash Flow Projection – The Comple...

Cash Flow Projection – The Complete Guide

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Key Takeaways

• Cash flow projection is a vital tool for financial decision-making, providing a clear view of future cash movements.
• Cash flow is crucial for business survival and includes managing cash effectively and providing a financial planning roadmap.
• Automation in cash flow management is a game-changer. It enhances accuracy, efficiency, and scalability in projecting cash flows, helping businesses avoid common pitfalls.

Introduction

Cash flow is the lifeblood of any business. Yet, many companies constantly face the looming threat of cash shortages, often leading to their downfall. Despite its paramount importance, cash flow management can be overwhelming, leaving businesses uncertain about their financial stability.

But fear not, there’s a straightforward solution to this common problem – cash flow projection. By mastering the art of cash flow projection, you can gain better control over your finances and steer your business away from potential financial crises. Cash flow projections offer a proactive approach to managing cash flow, enabling you to anticipate challenges and make informed decisions to safeguard the future of your business.

If you’re unsure how to accurately perform cash flow projections or if you’re new to the concept altogether, this article explains everything you need to know, provides you with a step-by-step guide to preparing cash flow projections and highlights the key role automation plays in enhancing the effectiveness of these projections. 

What Is Cash Flow Projection?

Cash flow projection is a financial forecast that estimates the future inflows and outflows of cash for a specified period, typically using a cash flow projection template. It helps businesses anticipate liquidity needs, plan investments, and ensure financial stability.

Think of cash flow projection as a financial crystal ball that allows you to peek into the future of your business’s cash movements. It involves mapping out the expected cash inflows (receivables) from sales, investments, and financing activities and the anticipated cash outflows (payables) for expenses, investments, and debt repayments.

It provides invaluable foresight into your business’s anticipated cash position, helping you plan for potential shortfalls, identify surplus funds, and make informed financial decisions.

Why Are Cash Flow Projections Important for Your Business?

Managing cash flow is a critical aspect of running a successful business. It can be the determining factor between flourishing and filing for Chapter 11  bankruptcy .

In fact, studies reveal that 30% of business failures stem from running out of money. To avoid such a fate, by understanding and predicting the inflow and outflow of cash, businesses can make informed decisions, plan effectively, and steer clear of potential financial disasters.

Calculating projected cash flow is a crucial process for businesses to anticipate their future financial health and make informed decisions. This process involves forecasting expected cash inflows and outflows over a specific period using historical data, sales forecasts, expense projections, and other relevant information. Regularly updating and reviewing projected cash flow helps businesses identify potential cash shortages or surpluses, allowing for proactive cash management strategies and financial planning.

Cash Flow Projection vs. Cash Flow Forecast

Having control over your cash flow is the key to a successful business. By understanding the differences between cash flow forecasts and projections, business owners can use these tools more effectively to manage their finances and plan for the future. 

Step-by-Step Guide to Creating a Cash Flow Projection

An effective cash flow projection enables better management of business finances. Here is a step-by-step process to create cash flow projections:

Step 1: Choose the type of projection model

• Determine the appropriate projection model based on your business needs and planning horizon.
• Consider the following factors when choosing a projection model:
• Short-term projections : Covering 3-12 months, these projections are suitable for immediate planning and monitoring.
• Long-term projections : Extending beyond 12 months, these projections provide insights for strategic decision-making and future planning.
• Combination approach : Use a combination of short-term and long-term projections to address both immediate and long-range goals.

Step 2: Gather historical data and sales information

• Collect relevant historical financial data, including cash inflows and outflows from previous periods.
• Analyze sales information, considering seasonality, customer payment patterns, and market trends.

Pro Tip: Finance teams often utilize accounting software to ingest a range of historical and transactional data. 

Step 3: Project cash inflows

• Estimate cash inflows based on sales forecasts, considering factors such as payment terms and collection periods.
• Utilize historical data and market insights to refine your projections.

Step 4: Estimate cash outflows

• Identify and categorize various cash outflow components, such as operating expenses, loan repayments, supplier payments, and taxes.
• Use historical data and expense forecasts to estimate the timing and amount of cash outflows.

Pro Tip: By referencing the cash flow statement, you can identify the sources of cash inflows and outflow s. 

Step 5: Calculate opening and closing balances

• Calculate the opening balance for each period, which represents the cash available at the beginning of the period.
• Opening Balance = Previous Closing Balance
• Calculate the closing balance by considering the opening balance, cash inflows, and cash outflows for the period.
• Closing Balance = Opening Balance + Cash Inflows – Cash Outflows

Step 6: Account for timing and payment terms

• Consider the timing of cash inflows and outflows to create a realistic cash flow timeline.
• Account for payment terms with customers and suppliers to align projections with cash movements.

Step 7: Calculate net cash flow

• Calculate the net cash flow for each period, which represents the difference between cash inflows and cash outflows.
• Net Cash Flow = Cash Inflows – Cash Outflows

Pro Tip: Calculating the net cash flow for each period is vital for your business, as it gives you a clear picture of your future cash position. Think of it as your future cash flow calculation.

Step 8: Build contingency plans

• Incorporate contingency plans to mitigate unexpected events impacting cash flow, such as economic downturns or late payments.
• Create buffers in your projections to handle unforeseen circumstances.

Step 9: Implement rolling forecasts

• Embrace a rolling forecast approach, where you regularly update and refine your cash flow projections based on actual performance and changing circumstances.
• Rolling forecasts provide a dynamic view of your cash flow, allowing for adjustments and increased accuracy.

Cash Flow Projection Example

Let’s take a sneak peek into the cash flow projection of Pizza Planet, a hypothetical firm. In March, they began with an opening balance of $50,000. This snapshot will show us how their finances evolved during the next 4 months.

Here are 5 key takeaways from the above cash flow projection analysis for Pizza Planet:

Upsurge in Cash Flow from Receivables Collection (April):

• Successful efforts at collecting outstanding customer payments result in a significant increase in cash flow.
• Indicates effective accounts receivable management and timely collection processes.

Buffer Cash Addition (May and June):

• The company proactively adds buffer cash to prepare for potential financial disruptions.
• Demonstrates a prudent approach to financial planning and readiness for unexpected challenges.

Spike in Cash Outflow from Loan Payment (May):

• A noticeable cash outflow increase is attributed to the repayment of borrowed funds.
• It suggests a commitment to honoring loan obligations and maintaining a healthy financial standing.

Manageable Negative Net Cash Flow (May and June):

• A negative net cash flow during these months is offset by a positive net cash flow in other months.
• Indicates the ability to handle short-term cash fluctuations and maintain overall financial stability.

Consistent Closing Balance Growth:

• The closing balance exhibits a consistent and upward trend over the projection period.
• Reflects effective cash flow management, where inflows cover outflows and support the growth of the closing cash position.

Overall, the cash flow projection portrays a healthy cash flow for Pizza Planet, highlighting their ability to collect receivables, plan for contingencies, manage loan obligations, have resilience in managing short-term fluctuations, and steadily improve their cash position over time.

How to Calculate Projected Cash Flow?

To calculate projected cash flow, start by estimating incoming cash from sources like sales, investments, and financing. Then, deduct anticipated cash outflows such as operating expenses, loan payments, taxes, and capital expenditures. The resulting net cash flow clearly shows how much cash the business expects to generate or use within the forecasted period. 

Calculating projected cash flow is a crucial process for businesses to anticipate their future financial health and make informed decisions. This process involves forecasting expected cash inflows and outflows over a specific period using historical data, sales forecasts, expense projections, and other relevant information. Regularly updating and reviewing projected cash flow helps businesses identify potential cash shortages or surpluses, allowing for proactive cash management strategies and financial planning. 

Download our cash flow calculator to effortlessly track your company’s operating cash flow,

net cash flow (in/out), projected cash flow, and closing balance.

6 Common Pitfalls to Avoid When Creating Cash Flow Projections

At HighRadius, we recently turned our research engine toward cash flow forecasting to shed light on the sources of projection failures. One of our significant findings was that most companies opt for unrealistic projection models that don’t mirror the actual workings of their finance department.

Cash flow projections are only as strong as the numbers behind them. No one can be completely certain months in advance if they will encounter any unexpected events. Defining a realistic cash flow projection for your company is crucial to achieving more accurate results. Don’t let optimism cloud your key assumptions. Stick to the most likely numbers for your projections.

A 5% variance is acceptable, but exceeding this threshold warrants a closer look at your key assumptions. Identify any logical flaws that may compromise accuracy. Take note of these pitfall insights we’ve gathered from finance executives who have shared their experiences:

• Avoid overly generous sales forecasts that can undermine projection accuracy.
• Maintain a realistic approach to sales projections to ensure reliable cash flow projections.

Accounts Receivable: 

• Reflect the payment behaviour of your customers accurately in projections, especially if they tend to pay on the last possible day despite a 30-day payment schedule.
• Adjust the projection cycle to align with the actual payment patterns.
• Factor in annual and quarterly bills on the payables side of your projections.
• Consider potential changes in tax rates if your business is expected to reach a new tax level.
• Account for seasonal fluctuations and cyclical trends specific to your industry.
• Analyze historical data to identify patterns and adjust projections accordingly to reflect these variations.
• Incorporate contingencies in your projections to prepare for unforeseen circumstances such as economic downturns, natural disasters, or changes in market conditions.
• Build buffers to mitigate the impact of unexpected events on your cash flow.
• Failing to create multiple scenarios can leave you unprepared for different business outcomes.
• Develop projections for best-case, worst-case, and moderate scenarios to assess the impact of various circumstances on cash flow.

By addressing these pitfalls and adopting these best practices shared by finance executives, you can create more reliable and effective cash flow projections for your business. Stay proactive and keep your projections aligned with the realities of your industry and market conditions.

How Automation Helps in Projecting Cash Flow?

Building a cash flow projection chart is just the first step; the real power lies in the insights it can provide. Cash flow projection is crucial, but let’s face it – the traditional process is resource-consuming and hampers productivity. 

However, there’s a solution: a cash flow projection chart automation tool. 

Professionals in treasury understand this need for automation, but it requires an investment of time and money. Building a compelling business case is straightforward, especially for companies prioritizing cash reporting, forecasting, and leveraging the output for day-to-day cash management and investment planning.

Consider the following 3 business use cases shared by finance executives, highlighting the benefits of automated cash flow projections that far outweigh the initial investment:

Scalability and adaptability:

Forecasting cash flow in spreadsheets is manageable in the early stages, but as your business grows, it becomes challenging and resource-intensive. Manual cash flow management struggles to keep up with the increasing transactions and customer portfolios.

Many businesses rely on one-off solutions that only temporarily patch up cash flow processes without considering the implications for the future. Your business needs an automation tool that can effortlessly scale with your business, accommodating evolving needs.

Moreover, by opting for customization options, you can tailor the cash flow projections to your specific business requirements and adapt to changing market dynamics.

Time savings:

Consider a simple example of the time and effort involved in compiling a 13-week cash flow projection for stakeholders every week. The process typically includes:

• Capture cash flow data from banking and accounting platforms and classify transactions.
• Create short-term forecasts using payables and receivables data.
• Model budgets and other business plans for medium-term forecasts.
• Collect data from various business units, subsidiaries, and inventory levels.
• Consolidate the data into a single cash flow projection.
• Perform variance and sensitivity analysis.
• Compile reporting with commentary.

This process alone can consume many hours each week. Let’s assume it takes six hours for a single resource and another six hours for other contributors, totalling 12 hours per week or 624 hours per year. 

By implementing a cash flow projection automation tool, you can say goodbye to tedious manual tasks such as logging in, downloading data, updating spreadsheets, and compiling reports. Automating these processes saves your team countless hours, allowing them to focus on strategic initiatives and high-value activities.

Imagine the added time spent on data conversations, information requests, and follow-ups. Cash reporting can quickly become an ongoing, never-ending process.

By implementing a cash flow projection automation tool, you can say goodbye to tedious manual tasks such as logging in, downloading data, manipulating spreadsheets, and compiling reports. Automating these processes saves your team countless hours, allowing them to focus on strategic initiatives and high-value activities.

Accuracy and efficiency:

When it comes to cash flow monitoring and projection, accuracy is paramount for effective risk management. However, manual data handling introduces the risk of human error, which can have significant financial implications for businesses. These challenges are:

• Inaccurate financial decision-making
• Cash flow uncertainty
• Increased financial risks
• Impaired stakeholder confidence
• Wasted resources and time
• Compliance and reporting challenges
• Inconsistent data processing

Automating cash flow projections mitigates these risks by ensuring accurate and reliable results. An automation tool’s consistent data processing, real-time integration, error detection, and data validation capabilities instill greater accuracy, reliability, and confidence in the projected cash flow figures.

For example, Harris, a leading national mechanical contractor, transformed their cash flow management by adopting an automation tool. They achieved up to 85% accuracy across forecasts for 900+ projects and gained multiple 360-view projection horizons, from 1 day to 6 months, updated daily. This improvement in accuracy allowed the team to focus on higher-value tasks, driving better outcomes.

Cash Flow Projections with HighRadius

Managing cash flow projections today requires a host of tools to track data, usage, and historic revenue trends as seen above. Teams rely on spreadsheets, data warehouses, business intelligence tools, and analysts to compile and report the data.

Discover the power of HighRadius cash forecasting software , designed to precisely capture and analyze diverse scenarios, seamlessly integrating them into your cash forecasts. By visualizing the impact of these scenarios on your cash flows in real time, you gain a comprehensive understanding of potential outcomes and can proactively respond to changing circumstances.

Heres how AI takes variance analysis to the next level and helps you generate accurate cash flow forecasts with low variance. It automates the collection of data on past cash flows, including bank statements, accounts receivable, accounts payable, and other financial transactions, and integrates with most financial systems. This data is analyzed to detect patterns and trends that can be used to anticipate future cash flows. Based on this historical analysis and regression analysis of complex cash flow categories such as A/R and A/P, AI selects an algorithm that can provide an accurate cash forecast.

When your forecast is off, you can miss opportunities to invest in growth or undermine your credibility and investor confidence. An accurate forecast means predictable growth and increased shareholder confidence. 

1. How do you prepare a projected cash flow statement?

Steps to prepare a projected cash flow statement:

• Analyze historical cash flows.
• Estimate future sales and collections from customers.
• Forecast expected payments to suppliers and vendors.
• Consider changes in operating, investing, and financing activities.
• Compile all these estimates into a projected cash flow statement for the desired period.

2. What is a projected cash flow budget?

A projected cash flow budget is a financial statement that estimates the amount of cash your business is expected to receive and pay out over a specific time period. This information can help your business have enough cash flow to maintain its regular operations during the given period.

3. What is a 3-year projected cash flow statement?

A 3-year projected cash flow statement forecasts cash inflows and outflows for the next three years. It helps businesses assess their expected cash position and plan for future financial needs and opportunities.

4. What are projected cash flow and fund flow statements?

A projected cash flow statement forecasts cash inflows and outflows over a period, aiding in budgeting and planning. The fund flow statement tracks the movement of funds between sources and uses, analyzing the financial position. Both provide insights into a company’s liquidity and financial health.

5. What are the four key uses of a cash flow forecast?

• Evaluate cash availability for operational expenses and investments.
• Identify potential cash flow gaps or surpluses.
• Support financial planning, budgeting, and decision-making.
• Assist in securing financing or negotiating favorable terms with stakeholders.

6. What is the cash flow projection ratio?

The term cash flow projection ratio is not a commonly used financial ratio. However, various ratios like operating cash flow ratio, cash flow margin, and cash flow coverage ratio are used to assess a company’s cash flow generation and management capabilities.

7. What is the formula for projected cash flow?

The projected cash flow formula is Projected Cash Flow = Projected Cash Inflows – Projected Cash Outflows . It calculates the anticipated net cash flow by subtracting projected expenses from projected revenues, considering all sources of inflows and outflows.

8. What are the advantages of cash flow projection?

Cash flow projection helps businesses:

• Anticipate future financial needs
• Manage cash shortages effectively
• Make informed decisions
• Ensure stability and growth
• Provide a roadmap for financial planning
• Stay proactive in managing finances

Related Resources

Why Cash Flow Is King: Importance & How to Improve It

Foreign Exchange Risk Management Challenges

What is Cash Flow Formula: Types, Examples & Calculation

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Blog / Small business tips / What is a cash flow forecast? (And how to create one)

What is a cash flow forecast? (And how to create one)

No matter what size your business is, financial forecasting is important. Especially so for small businesses, where cash flow is your lifeblood.

Without a positive cash flow, it’s hard to survive and make the right decisions for taking your business to the next level. The question is, how can you ensure (and predict) what your finances will look like over the next year of business?

In this article, we’re going to show you how to answer this question by creating a cash flow forecast. You’ll learn what it is, how to create one and how they can be used to make strategic business decisions.

Table of contents

What is a cash flow forecast, how to create a cash flow forecast.

• Expert insights

Wrapping up

• Cash flow forecast glossary

A cash flow forecast is a report or document that estimates how much money will move in and out of your business over a 12 month period. This includes estimated sales, income and general business expenses .

While 12 months is the typical length of time cash flow is forecasted across, you can create forecasts over shorter periods of time. This is handy when making strategic business decisions that might affect your income and revenue generation.

So, why should you create a cash flow forecast in the first place? There are several benefits:

• Predict surges or shortages in cash flow
• Allow you to make better business decisions
• Predict how those decisions will affect future cash flow
• Plan for loans or lines of credit
• Provide context and information to stakeholders

Most importantly, it will allow you to answer questions around some of the bigger (and perhaps pivotal) business decisions you’ll come across in your entrepreneurial journey. These include:

• Can you expand into other territories?
• Can you start hiring talent/a new member of staff?
• Are you able to offer new products or services?
• Are you at risk of running out of cash, and if so, do you need to borrow?

Finally, let’s look at what your cash flow forecast should include (segmented by “cash inflows” and “cash outflows”):

Cash Inflows

• Accounts receivables
• Expected earnings from sales
• Investments
• Sales of company assets
• Loan advances

Cash Outflows

• Accounts payable
• Employee wages
• Operating expenses
• Loan payments

Now you know why cash flow forecasts are important, let’s look at how to create one. Here’s an example of what a cash flow forecast looks like:

(You can download a template of this cash flow forecast here ).

Your cash flow forecast is made up of three separate forecasts: sales forecasts, profit and loss statements, and cash flow. Let’s look at each of these reports and how to create them.

1. Setting up your sales forecast

Your sales forecast breaks down how many sales you expect to generate on a monthly basis. By predicting sales, you’ll be able to better predict your total cash flow.

Your sales forecast doesn’t have to be complicated. Simply create a spreadsheet that breaks down the estimated sales by month and by product/service type:

To start populating your sales forecast, start by looking at the sales generated over the previous financial year. Look out for seasonal trends where sales spiked or dropped. You should also consider new markets or audiences you’re looking to serve, as well as new product or service propositions you’re developing.

An extra benefit of sales forecasts is knowing where to double-down. For example, if you find a particular product is generating the majority of your sales, you can make strategic decisions to invest more budget into promoting it.

If you’re running a service-based business, or offer high-ticket products, look at your sales pipeline to predict new business that are likely to close. Knowing what the common buying signals are will help you identify which sales opportunities are likely to close, and when they’re likely to do so.

Top Tip: If you’re liable to pay VAT, do not include this in your sales forecast. You want to predict sales, not gross revenue, to make your sales forecast as simple as possible.

Putting sales forecasts into action

Let’s say you’re running an e-commerce store selling 20 different varieties of socks. Next year, you plan to launch 10 new types of socks and expect to win a wholesale deal with a popular retail brand.

In your sales forecast, start with a row for each of the 20 socks you sold last year. Start with the sales amount for each variety and increase by the percentage you expect to increase by.

Next, create extra lines for each product you’re selling to the wholesaler. Include the predicted sales amount of these products based on how many units you expect them to purchase, and how much each unit costs.

Finally, add a line for each of the new varieties of sock you plan to sell, and include the expected amount you plan to sell of each. Use your product design and planning phase to identify overall demand in the market, and thus estimate how many of each new product you expect to sell.

2. Profit and loss forecast

Profit and loss statements report on your costs (in the form of expenses) and income across a specific timeframe. A profit and loss forecast (P&L forecast), therefore, predicts future income and expenses based on historical data.

Predicting your profit and loss is key, as it will help you estimate how much tax you’re likely to pay over the next year. It will also help you figure out what your future costs will be based on new product/service offerings, and any new members of staff you plan to hire.

Your profit and loss forecast will look similar to your actual profit and loss statement:

The first few rows are dedicated to your predicted sales, which you’ll populate from the sales forecast you created above. It will then calculate your predicted net profit by subtracting your cost of sales and overheads from those sales. Here’s a quick breakdown of the two:

• Cost of sales is the cost of materials you need to purchase in order to create, manufacture or procure your products (not applicable for service-based businesses)
• Overheads include general business expenses, such as marketing, website hosting, staff and travel expenses

Top Tip: Want to learn everything you need to know about cost of sales? Check out our complete guide on the subject here .

Let’s run through the list of overheads you should include as part of your profit and loss forecast:

• Staff: Include salaries and taxes (i.e. National Insurance) of those on your books
• Software: Include the tools and platforms you use to run your business, e.g. web hosting, e-commerce platform, marketing software etc.
• Professional services: Do you hire contractors, agencies or accounting firms to help you run your business? Add these to your P&L forecast
• Telephone and communication costs: Include any phone subscriptions or software you use to run your business communications
• Office consumables: This includes cables and other hardware used to run your business
• Delivery costs: If you package and ship your goods to customers, include these costs
• Stationary: This includes everything from pens to paper clips
• Depreciation: Calculate the depreciation of your assets, as well as business use of your home and travel expenses

Top Tip: Your P&L forecast should only include regular expenses used to run your business on a day-to-day basis, not one-off purchases (such as laptops and furniture).

Putting P&L forecasts into action

Let’s re-visit our sock example from earlier, starting with cost of sales. These would include the cost of materials, as well as any manufacturing costs to get the socks created and embroidered.

These socks are then packaged up and delivered straight to customers, which would count as delivery costs, not cost of sales. Why? Because cost of sales only accounts for the production or purchasing of the product you’re selling.

Then, we have our software costs to account for, such as web hosting and e-commerce platforms. On top of this, we calculate other software subscriptions we use, such as email marketing, project management and accounting software.

For the sake of example, our sock brand is a remote company, which means our only communication costs is a monthly mobile phone subscription.

By calculating the total cost of goods and overheads, we can predict the net profit generated on a monthly basis.

3. Cash flow forecast

We now have the two forecast statements that we need to create our cash flow forecast. To remind you, this is what your cash flow forecast should look like (which you can download here ):

Remember, your cash flow forecasts are built up of cash inflows and cash outflows. This includes the sales predicted in the sales forecast, as well as expenses calculated from the P&L forecast.

But you’ll also need to account for expected one-off expenses and cash injections across the year, such as new investments (computers etc.) and loans.

Use your sales forecast to predict “cash in”, segmenting by product categories as opposed to individual products or services. This will help keep your cash flow forecast more organised and easier to digest.

If you’re registered for VAT, make sure to include your sales amount exclusive of tax . In other words, if you make £100 selling a product and pay 20% on VAT, the actual amount for the purpose of your cash flow forecast would be £80.

Under the cash out section, you can simply copy-and-paste the data from your P&L forecast. You should also include the cost of expenses during the month you actually pay them. For example, if you pay your staff in arrears, put the expense under the month the money is actually transferred to their bank account.

Finally, include your closing bank balance for that month. To do this, include the amount you expect to be in your bank account in the first period (e.g. the first month of the next financial year). From here, you can calculate your predicted closing balance for each month.

This is critical, as it will allow you to see if your balance is rising or falling. If it’s rising, that’s great news! But if it’s falling, you’ll need to identify why, and look into how you can remedy the situation – either by cutting costs or borrowing cash.

Putting cash flow forecasts into action

In this final chapter of our sock narrative, let’s look at how our sales forecast and P&L forecast come together. Starting with cash in, we decide to create different rows for direct sales (through our e-commerce store) and wholesale income.

The reason for this? Direct sales are generated on the month they’re made, whereas wholesale income is invoiced one month and are expected to be paid another. Remember, you want to calculate income and expenses on the month they’re due to enter/leave your bank account.

Next, let’s look at cash moving out. Luckily, the majority of our costs are mostly the same on a monthly basis. In terms of depreciation, the only assets we own are a phone and laptop, so an estimated depreciation of that asset should be calculated.

However, we decide that we want to buy a new laptop before the end of the year, as the one we’re using is a little inefficient. So, we must include this as part of our estimated one-off costs (and when we expect it to be made).

From here, we can now see our overall cash inflow and cash outflow, and our expected bank balance at the end of each month.

💡Expert insights

Insights author: Justin Phillips is the Director of Tempo Accounting who offer online accounting services for freelancer.

What are the main benefits of cash flow forecasting and how do you manage it?

Small business owners have to make difficult financial decisions almost every day. The level of responsibility and risk can be a huge burden, but with the advent of cloud accounting and the availability of more sophisticated reporting, that is all has all changed.  

In particular, online cash flow web based accounting solutions have been a major contributor to reducing the stress load of business owners.  

Some business owners aren’t aware of the advantages of online web based cloud accounting, so we’ve got the lowdown on why business owners should be using an online web based cash flow forecast system. 

What a cash flow forecast can do for your clients

Cash flow forecasting is an essential tool for business planning. It can be done in various ways, with the old fashioned spreadsheet method being the most traditional.

But what are the main advantages of a cash flow forecast for your clients?

Understand the impact of future plans and possible outcomes

For many small businesses, one late payment can lead to cash in the bank taking a nosedive very quickly. But modelling alternate scenarios can help business owners to understand how various situations will impact their cash flow, which is a crucial part of business planning.  Using scenarios to test different possible future situations can provide the peace of mind a business owner needs to confidently put plans in place.

Keep track of overdue payments

Keeping on top of consistent late payers is often the bane of a business owner’s life. Having insight into late payers and the impact they have on the bottom line can alert clients to the need for more effective credit control .

Manage surplus cash

For most businesses, it’s rare to see excess cash in the bank. But using additional cash for reinvestment in new markets, or for the repayment of loans, can be essential to keeping afloat.  

With cloud dynamic accounting when they’ll have surplus cash in the bank, and being able to see where and when the surplus will occur, means that business owners are better able to plan for what to do with the surplus.

With Tempo Accounting you will be able to dynamically view reporting showing exactly how much cash is in the bank as well as detailing tax liabilities helping you to avoid those late fines as well as proactive tax planning.

This up to to minute accounting makes sure you never miss a deadline!

Save time over a spreadsheet using online tools

Building a cash flow forecast in a spreadsheet, particularly if you’ve never done it before, can take a lot of time and effort. However, using cloud-based software can often take the pain out of forecasting your cash.

Saving you both time and money in the long-run, online tools are invaluable to actionable and efficient planning. With a good accounting service, this can be all entered and tracked via your mobile phone.

There are a growing number of businesses on cloud-based online platforms, making it easier than ever for business owners to owner wants. 

Although there are many advantages to a cash flow forecast it is key to seek out an accountant that not only embraces online accounting but partners it will real accounting support.

With the numbers behind your expenses and income at hand, you’re now able to make more strategic business decisions based on your projected cash flow. Are you in a good financial state to expand your product lines, or do you need to focus on generating more sales for your existing ones?

To summarise, the process of creating your cash flow forecast is as follows:

• Create your sales forecast to predict income over the next financial year
• Create a profit & loss forecast to predict outgoings (based on historical expenses)
• Use these forecasts to calculate your cash flow over the next year, and expected bank balance at the end of each month

If you’re just starting out in business, it’s going to be difficult to calculate cash flow forecasts. However, as you start collecting financial data, you’ll be able to predict the financial health and make the right decisions to help you reach your goals.

Cash flow forecasting glossary

Accounts Payable: The amount owed by a company to suppliers/vendors for goods or services it received on credit.

Accounts Receivable: The amount owed to a company resulting from the company providing goods or services to customers on credit.

Balance Sheet: A statement of the assets, liabilities, and capital of a business or other organisation at a particular point in time, detailing the balance of income and expenditure over the preceding period.

Capital: Wealth in the form of money or other assets owned by a person or organisation or available for a purpose such as starting a company or investing.

Cash Flow Statement: A financial statement that provides aggregate data regarding all cash inflows a company receives from its ongoing operations and external investment sources, as well as all cash outflows that pay for business activities and investments during a given period.

Cash Inflow: The cash going into a business, e.g. money from sales, investments, or financing.

Cash Outflow: The cash leaving a business, e.g. expenses on debt repayment or salaries.

Current Assets: Cash and other assets that are expected to be converted to cash within a year.

Current Liabilities: Amounts due to be paid to creditors within twelve months.

Depreciation: A decrease in the value of an asset over time, due in particular to wear and tear.

Financing Activities: The inflow and outflow of cash resulting from debt issuance and financing, the issuance of any new stock, dividend payments, and any repurchase of existing stock.

Income Statement: One of the three important financial statements used for reporting a company’s financial performance over a specific accounting period.

Investing activities: These are the second main category of net cash activities listed on the statement of cash flows and consist of buying and selling long-term assets and other investments.

Operating Activities: These are the functions of a business directly related to providing its goods or services to the market.

Profit: A financial gain, especially the difference between the amount earned and the amount spent in buying, operating, or producing something.

Photo by Ricardo Resende, published on Unsplash

Shahree Zin

Partnerships Manager and small business accounting advocate

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Cash Flow Basics for Small Business Explained

Noah Parsons

13 min. read

Updated May 11, 2024

Cash is the lifeblood of every business, and running out of it is the number one reason that small businesses fail. Even if you are making plenty of sales, if you don’t have enough cash in the bank your business won’t be able to pay its bills and stay open.

That’s why it’s so important for businesses to understand the basics of cash flow and cash flow forecasting. We’ll be covering those elements and more throughout this guide.

• What is cash flow?

Cash flow measures how much money moves into and out of your business during a specific period.

Businesses bring in money through sales, returns on investments, and loans and investments—that’s cash flowing into the business.

And businesses spend money on supplies and services, utilities, taxes, loan payments, and other bills—that’s cash flowing out.

Cash flow is measured by comparing how much money flows into a business during a certain period to how much money flows out of that business during that period. 

You usually measure cash flow over a month or a quarter.

• How to calculate cash flow

The simplest formula for calculating cash flow is:

CASH RECEIVED – CASH SPENT = NET CASH FLOW

If your net cash flow number is positive, your business is cash flow positive, and accumulating cash in the bank.

If your net cash flow number is negative, your business is cash flow negative, and you are finishing the month with less cash than you started with.

What’s the difference between Cash and Profit?

Believe it or not, it’s possible for your business to be profitable but still run out of cash. That may not be intuitive initially, but it’s because cash and profits are very different. Here’s why.

Profits can include sales you’ve made but haven’t been paid for yet.

Cash, on the other hand, is the amount of money you actually have in your bank account. It represents your business’s liquidity; it’s not cash if you can’t use it right now to pay your bills.

For example, if you’re making a lot of sales but you invoice your customers, and they pay you “net 30,” or within 30 days of receiving the invoice, you could have lots of revenue on paper but not a lot of cash in your bank account because your customers haven’t paid you yet. Those sales will only show up on your income statement .

If the money your customers owe you hasn’t entered your bank account, it won’t appear on your cash flow statement yet. It isn’t available to your business at this point. It’s still in your customers’ hands, even though you’ve invoiced them. You keep track of the money your customers owe you in accounts receivable .

Meanwhile, you can only pay your bills with real cash in your bank account. It will be tough to fulfill orders, meet payroll, and pay rent without that cash. That’s why keeping track of cash flow is so important. 

To keep your business afloat, you need to have a good sense of what comes in and what goes out of your business every month and do everything you can to remain cash flow positive.

Dig deeper:

The difference between cash and profits

Learn more about the specific differences between cash and profits and how they impact your business.

The difference between cash flow and working capital

Cash flow and working capital tell different financial stories about your business. Cash flow deals with money moving in and out of your business while working capital compares assets and liabilities.

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• How to analyze a cash flow statement

When analyzing your historical cash flow statement, you’re looking at the amount of real cash you have on hand at the beginning of the month, compared to your cash at the end of the month. 

You can also look at your cash flow over different time frames – quarterly, for example – but a good rule of thumb is to regularly look at your cash flow to better understand any changes in the health of your business.

To see a visual example of how this works within a business, you can download this free cash flow example as a PDF or Excel sheet .

When conducting a cash flow analysis, you’ll want to be sure you understand the following key terms. 

Positive cash flow

Positive cash flow is defined as ending up with more liquid money on hand at the end of a given period of time compared to what was available when that period began.

Let’s say you started with $1000 in cash at the beginning of the month. You paid $500 in bills and expenses, and your customers paid you $2,000 for your services. Good news: Your cash flow is positive, at $1,500 for the month, leaving you with $2500 in cash.

If you have positive trending cash flow, it’s easier to:

• Pay your bills: Positive cash flow ensures employees get checks during each payroll cycle. It also gives decision makers the funds they need to pay suppliers, creditors, and the government.
• Invest in new opportunities: Today’s business world moves quickly. When cash is readily available, business owners can invest in opportunities that may arise at any given point in time.
• Stomach the unpredictable: Having access to cash means that whenever equipment breaks, clients don’t pay their invoices on time, or when new government regulations come into effect, businesses can survive.

Negative cash flow

Negative cash flow is when more cash is leaving the business than is coming in. When cash flow is negative, the amount of cash in your bank account is shrinking. This might not be a problem if your business has plenty of cash in the bank. But, it does mean that your business will eventually run out of money if it doesn’t become cash flow positive at some point.

Let’s say you started with $2,000 in the bank at the beginning of the month. You paid $1,500 in bills and expenses, and even though you did plenty of work and invoiced your customers for $3,000 worth of services, your customers only actually paid you $200. You’re still waiting for the rest of your payments to come in. Your cash flow is negative: -$1,300 for the month, leaving you with only $700 in cash.

If you don’t have any reserves, your rent check might bounce. If you have an established line of credit, you might rely on that to pay part of your bills. Maybe you forecasted your cash flow and knew that you were going to be short that month, so you made a plan to cover your expenses.

One month of negative cash flow won’t necessarily tank your business. But your business is at risk when you start to see a trend, and you don’t do nothing to reverse it (or when you’re unpleasantly surprised because you haven’t been tracking your cash flow). 

Cash Burn Rate and Runway

New businesses and startups often have negative cash flow when starting. They have lots of bills to pay while they’re getting up and running, and there aren’t a lot of sales yet. As revenue from sales starts to come in, hopefully, cash will flow into the business instead of just flowing out. 

This is why new businesses often need investment and loans to get started—they need cash in the bank to cover all of the negative cash flow during the business’s early days.

When starting out, it’s important to track Cash Burn Rate, which is essentially your negative cash flow number – the amount of money you are “burning” each month. You can then use that number to determine how many months of cash you have left – this is your “runway.” 

Read our detailed explanation of cash burn rate and cash runway to learn more about how to find, measure, and adjust these metrics.

Negative cash flow can also happen when a business chooses to invest in a new opportunity. The business could be betting that investing in a new opportunity now will pay off in the future. That investment could cause negative cash flow for some time, so it’s important to keep a close eye on cash and have a solid cash flow forecast in place so you know if your business is on track to stay in the black.

How positive and negative cash flow impact your business

Learn more about your relationship with positive and negative cash flow and how understanding these concepts will help you better understand your business health.

The importance of your burn rate and cash runway

Learn to calculate how much cash you’re using up and how long you have until it’s depleted.

15 tips for dealing with clients who won’t pay

A major factor that impacts your positive cash flow is clients paying on time. If delays in payment are leading to a cash flow crunch, there are a few things worth trying.

• Why cash flow forecasting is important

You’ll want to monitor your historical cash flow at least once a month so you can start spotting trends with what’s actually happening with your cash inflow and outflow.

But it’s not just measuring the past and present, forecasting your cash flow can also help you anticipate when your business might run low on cash in the future. You can then plan ahead and open a line of credit or find other loans and investments to help you cover that point in the future when you’re going to need a little extra cash.

It’s a lot easier to get help from a bank or investor before you’re actually in a crisis where you’re not sure you can cover your bills. If you wait until you’re really in trouble to take action, lenders may see you as too much of a risk and turn down your request.

Your cash flow forecast can also help you plan the best time to make a big purchase, like a new piece of equipment or a company vehicle.

Don’t forget to account for the unknown, though. Business owners can’t predict the future—particularly when it comes to any unforeseen expenses they might incur (e.g., a truck breaking down prematurely and needing replacement, or a data breach resulting in a forced increase in IT spend). And they also can’t know for certain that their clients will pay their bills on time.

So, when you’re forecasting or looking at your cash flow statement for last month, remember that having some buffer is a good thing. You don’t want to be in a position where you’ve allocated every single penny, to the point where you can’t accommodate unexpected expenses.

Part of reviewing your cash flow should be thinking about risk, and the effect an unexpected expense will have on your available cash—and ultimately, your ability to pay your bills.

How to forecast your cash flow and build a cash flow statement

A cash flow projection is all about predicting your money needs in advance. 

Unfortunately, though, forecasting your cash flow is a bit more complicated than forecasting other aspects of your business such as your sales and expenses. Your cash flow statement takes inputs from your revenue projections, your expense projections, and also your inventory purchase plans if your business keeps inventory on hand.

In addition to that, you need to predict when your customers will pay you – will all of them pay on time? Or will some take longer to pay?

A tool like LivePlan can greatly simplify cash flow forecasting, but you can also do it yourself with spreadsheets.

There are two methods you can use to build a cash flow statement : the direct method and the indirect method. While they will both arrive at the same end-result and predict how much cash you will have in the bank in the future, they accomplish that goal in different ways.

The direct method of forecasting cash flow

The direct method provides a very clear view of how cash moves in and out of a business. You essentially add up all the cash your business has received from various sources and then subtract all the cash that is paid out to suppliers, vendors, employees, etc. 

This number will be the amount of cash you’ve added or subtracted from your bank account during the month.

The indirect method of forecasting cash flow

The indirect method starts with your net income from your Profit and Loss Statement and then makes adjustments to that number to account for non-cash expenses such as depreciation. 

From there you make adjustments to account for changes in inventory, accounts receivable , and accounts payable .

The indirect method is very common for building historical cash flow statements because the required numbers are all easily generated from your accounting system. This makes it a fairly popular method for forecasting cash flow. 

However, the direct method is generally easier for people who aren’t as familiar with the intricacies of accounting.

Read our guide for a more detailed explanation of the two methods of creating a cash flow statement .

Forecasting cash flow

If you’re forecasting cash flow using spreadsheets, I recommend using the direct method. It’s easier and more straightforward.

Essentially, you want to create future estimates of when you’ll receive money from customers and when you’ll pay your bills. 

It’s not critical to forecast every invoice and bill payment, though. Forecasting is about helping you make strategic decisions about your business, so making broader estimates in your forecast is OK.

How to manage cash flow with an accurate forecast

Learn how to leverage your cash flow forecast to actively manage your business and improve your chances for growth.

• How to improve your cash flow

If your cash flow is negative or you’re just looking for ways to improve your cash flow in general, there are plenty of options available. Here’s a quick list of things you can do:

• Convince your customers to pay you faster
• Pay your own bills a bit slower
• Purchase less inventory and keep less inventory on hand
• Follow up on bad debts
• Establish a line of credit or other type of business loan

Depending on your situation, you may use these methods or even consider more drastic measures if the broader economy is impacting your ability to create positive cash flow.

Tips to improve your cash flow

Are you struggling to maintain healthy cash flow? Check out these ten tips to improve the health of your business.

How to prevent cash flow problems

The best way to improve your cash flow is by preventing problems before they ever start. Here are four ways to do it.

How to manage cash flow in a crisis

Here are five tips to help strengthen your cash position and keep your business healthy even when dealing with terrible circumstances.

How to balance cash flow in a seasonal business

Seasonal businesses have unique challenges you’ll want to consider, including variations on cash flow management. Check out these techniques to effectively balance your cash flow and avoid seasonal surprises.

Noah is the COO at Palo Alto Software, makers of the online business plan app LivePlan. He started his career at Yahoo! and then helped start the user review site Epinions.com. From there he started a software distribution business in the UK before coming to Palo Alto Software to run the marketing and product teams.

Table of Contents

• Cash vs profit
• How to forecast cash flow

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What Is Cash Flow Forecasting? Templates & How To Do It

7 minute read

Key Takeaways

Cash flow forecasting is a method for estimating cash inflows and outflows over a future specific period of time.

A cash flow forecast is created by having an opening cash balance, calculating the predicted net cash flow, calculating the ending balance, and doing this for each chosen month on the forecast.

Forecasting provides clarity for the next 3-6 months, guiding decisions related to investments, company expansion, and strategic planning for various financial scenarios.

Did you know that only 27% of businesses have prepared a cash flow forecast? This explains why 82% of small businesses fail because of cash flow problems, and it suggests that understanding and managing cash flow plays a key role in achieving success in running a business.

So, what makes cash flow forecasting so difficult that business owners want to avoid it so much? This article will explain what cash flow forecasting is and provide the necessary steps, requirements, and templates for entrepreneurs so you don't fall into the same trap as other entrepreneurs.

What is Cash Flow Forecasting?

Cash flow forecasting, also known as cash flow projection, is a method of estimating the number of cash inflows and outflows of a given business across a future, specific amount of time. Conducting a cash flow forecast allows businesses to plan for cash deficits further and manage risk effectively. 

A typical cash flow forecast might take anywhere from a few weeks to several months to complete, depending on the time interval chosen. 

The primary goal of cash flow forecasting is to provide insight into a company's liquidity, allowing for better decision-making and strategic planning. By analyzing expected cash movements, businesses can identify potential cash shortages or surpluses, enabling them to take proactive measures to address any financial challenges or capitalize on opportunities.

Which Businesses Should Conduct Cash Flow Forecasting?

A common question that gets asked is whether conducting a cash flow forecast is worthwhile for companies and what type of businesses can benefit from a cash flow forecast.

All types of businesses can benefit from a cash flow forecast, however, those that experience fluctuations in income & expenses, such as SMEs, seasonal market changes, such as those in hospitality, and newer companies that involve risk, such as startups, tend to benefit the most.

In addition, forecasting in businesses that experience significant upfront costs, such as manufacturing and construction, is a fundamental practice to help with cash flow management.  

Here are other sectors that can benefit from a cash flow forecast.

High-growth tech startups - Cash flow forecasting is crucial for high-potential tech startups, as its goal will always be rapid growth. A tech startup needs to plan for research and development costs and attract investors by demonstrating financial prudence. A cash flow forecast aids in this endeavor. 

Healthcare - Healthcare organizations, including hospitals and clinics, rely on cash flow forecasting to manage operational costs, plan for capital expenditures, and navigate the complexities of insurance reimbursements.

Agriculture - Agricultural businesses benefit from cash flow forecasting to manage planting and harvesting cycles, purchase necessary equipment, and navigate the impact of weather conditions on crop yields and revenues.

The Importance of Cash Flow Forecasting

Why is cash flow forecasting important? Here are a variety of reasons: 

Improved Financial Planning

Cash is the lifeblood of all businesses. Without a clear overview of the cash that’s coming in and out of a business at any given time, a company may run into unforeseen financial challenges, cash bottlenecks, and increased debt levels. On the other hand, strong financial planning will result in high business liquidity, stronger team morale, and better investment opportunities.

Forecasting can help financial reporting by giving businesses an accurate lens of potential operational challenges that may come up in the case of low cash flow. Through a forecast, a company can also make better decisions such as choosing to cut budgets in the case where cash flow is tight or allocate funds in the case of healthy cash flow.

Risk Management

During periods of low liquidity, forecasting allows businesses to better plan for economic downturns. While in periods where cash flow is predicted to be strong, a business can pre-plan business expansion activities. 

This early identification of potential cash bottlenecks can help avoid situations where the business may struggle to meet its financial obligations.

Compliance and Reporting

A cash flow statement is a type of financial statement required for GAAP compliance. GAAP, abbreviated as “generally accepted accounting principles,” is a set of principles that provide a standardized framework for financial reporting, helping ensure consistency and comparability across different organizations. 

These statements are mandatory for GAAP compliance, while forecasts are only relevant for internal planning and decision-making. However, they contribute to compliance by creating a clear understanding of a company’s financial position. This can help entities fulfill regulatory filings, making sure tax obligations are paid for when due, and also aid meet debt obligations.

Further Enhanced Decision Making

Forecasting can help drive decision-making because forecasts can provide much-needed clarity for the next 3-6 months of a given firm. This enhances decision-making in the following ways:

• Dictates investment and company expansion opportunities.
• Business decisions are made based on informed selections.
• Decision-makers can use forecasts to plan to prepare for different potential financial scenarios in the case of an economic downturn. Or the case of a bull market, to plan to take advantage of economic upswings.

How to Create a Cash Flow Forecast?

1. determining your objective.

The first step is to determine your objective and what purpose are you creating a forecast. We will list a few examples:

Interest and debt reduction . The purpose of interest/debt reduction is to ensure that a business has enough cash on its hand to pay out debts and loans.

Growth planning. The purpose of growth planning is to ensure that a business has enough working capital to fund business expansion needs.

Short-term liquidity planning. Short-term liquidity involves overseeing the daily cash availability to guarantee that your business can fulfill its immediate financial responsibilities.

2. Selecting Your Interval

Cash flow forecasts can be long-term or short-term. There are three time frames you must choose from before conducting a cash flow forecast:

Short term forecast

A short-term forecast typically lasts less than 3 months. A general principle is that the shorter a forecast, the more accurate the forecast is. Therefore, short-term forecasts last no more than 3 months. This is optimal for short-term liquidity planning.

Mid-term forecast

Mid-term forecasts can make you look between 2 months to 12 months.

Long term forecast

Long-term forecasts last over a year and can play a role in long-term budgeting and financial planning. A comment to make is that the longer a forecast is, the less likely the accuracy of the forecast will be. 

3. Direct Method or Indirect Method

There are two common ways of forecasting cash flows: the direct method and the indirect method . The direct method is suited for daily cash management, while the indirect method provides a better basis for strategic planning:

Direct method -  focused on cash receipts and transactions. The direct method is transparent.

Indirect method - net income and adjusts it for non-cash items and changes in working capital to derive the cash flow from operating activities. The indirect method is less detailed.

Alignment - Companies may choose the method that aligns with their reporting preferences and regulatory compliance.

We will cover the indirect method in this article in the section “cash flow forecast templates.” 

4. Sourcing the Data Needed to Conduct a Forecast.

You can pull data from your account payables, account payables, bank accounts, and accounting software that you use. You will need three pieces of data.

• Opening cash balance.
• Cash inflows for the forecasting period.
• Cash outflows for the forecasting period.

A comment to make here is that the forecast cash inflows and outflow predictions will be made based on your current financial statements.

5. Making a Forecast

A forecast sheet is created. Please refer to the section on cash flow forecast templates for further details.

6. Regular Review

Once a forecast has been completed, it’s crucial that ongoing monitoring is done to make sure that results and the forecast match up, to ensure relevance and accuracy. Depending on the outcome, businesses may need to update their forecasts.

Best Cash Flow Forecast Templates for Free

Standard 1-year forecast using excel.

Here's an explainer video from " The Finance Story Teller " to walk you through the step-by-step process.

Many cash flow forecast templates are created through Excel. Here’s an example of a forecast. Let’s break down each section:

In the case of a 12-month interval

Months - This denotes the chosen cash flow forecast interval.

Cash opening balance - this denotes the amount of cash a business has at the beginning of each month. 

Net cash used in operating activities - this denotes the amount of cash a business is producing or losing from its core business operations. 

Net cash used in investing activities - this denotes the amount of cash a business is producing or losing from its financial activities.

Net cash used in financing activities - this denotes the amount of cash a business is producing or losing from its investing activities.

Cash ending balance - this denotes the predicted ending cash balance from each month.

Using a cash flow forecast template in Excel is one of the many ways businesses can project and manage their financial liquidity. 

A well-constructed cash flow forecast template not only aids in financial planning but also serves as a crucial tool for monitoring and managing the overall financial health of a business.

💡 Note: Excel is one of the methods of conducting a cash flow forecast. However, you can also produce a forecast using accounting software. 

Xero’s Cash Flow Forecast Template

Xero, a popular accounting software, has cash flow forecasting built into one of its features, but it also gives a free template that anyone can use. Xero’s cashflow forecast template uses a simple layout to help you predict your upcoming business costs. 

Unlike a standard cash flow template where operating cash flow, financing cash flow, and investing cash flow are calculated - the template is split into two categories: “cash in” and “cash out” for simplicity. 

Creating a Cash Flow Forecast Using Google Sheets

Google Sheets are more commonly used than Excel spreadsheets because of their sharing features across teams, making it a much more accessible option. Here’s a template created by Coupler.io that encompasses a short-term cash flow forecast.

For this template specifically, they are more focused on operating cash flow, splitting its categories into cash incomes, cash outgoings, and operating expenses. 

You can also create your own Google sheet template using the information shared on creating a forecast using Excel by breaking up the categories into opening cash balance, operating cash flow, and finally, the ending cash balance.

Information to Look Out for During a Forecast:

While analyzing your data, you should take note of the two following areas to prepare for scenarios:

Months with low net cash balance or negative cash flow. This means that there will be foreseen challenges regarding cash flow during the months that show a low net cash balance. Businesses can use this information to prepare for future events.

Months with high net cash balance or strong cash flow. This means that businesses can use this interval to invest in activities such as hiring more staff, investment opportunities, and repaying debt. 

Advantages & Limitations of Cash Flow Forecasting

There are several reasons to conduct a forecast on an interval basis. (bi-monthly or bi-yearly)

• Foresight/Strategic planning. Businesses with a clear understanding of expected cash inflows and outflows can allocate resources more strategically. This also allows businesses to anticipate potential challenges, such as delayed payments, cash shortages, and unexpected expenses, to proactively address issues before they occur.
• Keeps finances organized. Forecasting assists in the creation of comprehensive budgets. This organized financial planning helps businesses manage their finances more effectively.
• Early identification of issues. Early detection of potential cash flow issues allows businesses to implement proactive measures to mitigate risks in the case of months with negative cash flow. 
• Builds investor confidence. Regular and accurate forecasts provide investors with transparent insights into a company's financial health. This transparency builds trust and confidence among existing and potential investors.
• Liquidity management. Forecasting helps businesses maintain optimal cash reserves to cover operational needs and capitalize on strategic opportunities. This is crucial for avoiding liquidity crises and taking advantage of favorable market conditions, such as during which there's a positive cash flow figure predicted.
• Suitable for businesses with lots of transactions. Businesses with a high volume of transactions benefit significantly from forecasting, as it helps manage the complexity associated with numerous financial interactions. 
• Facilitates better budgeting and planning. Forecasting allows businesses to conduct scenario analysis, evaluating the impact of different variables on their financial position. This enables more informed decision-making and the development of resilient budgets that can adapt to changing circumstances.

Limitations

There are also several limitations of a forecast that you should be aware of.

• Does not account for market and economic volatility. Cash flow forecasts may not fully capture the impact of sudden market fluctuations or economic downturns. Unforeseen external events can significantly deviate actual cash flows from forecasted values.
• Not flexible. Some forecasting models may lack flexibility, making it challenging to adapt to changing business conditions. This inflexibility can result in inaccurate predictions if the business environment evolves differently than expected.
• It may be prone to human error. Forecasts often involve manual data entry and calculations, increasing the likelihood of human error. Inaccuracies in input data or formulae can lead to unreliable forecasts.
• It may be time-consuming, but other pressing matters may take priority. Developing and maintaining accurate forecasts can be time-consuming. In fast-paced business environments, other urgent matters may take precedence, leading to less attention to the forecasting process.
• Difficult for startups. Startups often lack a substantial historical financial record, making it challenging to develop accurate forecasts. The absence of reliable data can hinder businesses' forecasting process.
• Requires specialized skills/software. Effective forecasting may require specialized financial knowledge and the use of sophisticated software tools. Small business owners with limited financial expertise may find it challenging to implement and maintain such systems.
• Based on estimates and assumptions. Forecasts heavily rely on estimates and assumptions about future business activities. If these estimates prove to be inaccurate or assumptions change, the forecasted cash flows may deviate from actual results.

The Role of Automation in Cash Flow Forecasting

There are a multitude of ways you can automate your cash flow forecasting process, from the simple: integration with popular apps such as Xero, Quickbooks & Freshbooks, to the complicated - using machine learning tools and AI to analyze financial data. 

To what degree of automation you do in your cash flow forecast will depend on your business size, resources, and time available.

Automation in Cash Flow Forecasts Helps Save Time

For finance teams, setting up a cash flow forecast takes time away from other work activities. Therefore, setting up an automation system can help save time. There are two types of ways you can automate your forecasting. 

First is through the inputs you insert into your sheets. For example, you can automate the input of data into the cash flow forecast sheet. You can also set up notifications that notify teams when a cash flow forecast needs to be made and automate the input process using software.

The second way you can automate a cash flow forecast is through its output. Automation can be done through automatic reporting and analytics. Many cloud-based accounting software have pre-built features for cash flow forecasting and forecasting, which you can use to generate automated reports. 

You can also automate outputs to integrate with CRM (Customer Relationship Management) systems, payment processors, and banking platforms to consolidate financial data automatically.

Artificial Intelligence and Machine Learning in Cash Flow Forecasts

Using machine learning, teams can create an accurate cash flow forecast based purely on artificial intelligence calculating the output. There are a variety of ML models teams can use, such as neural networks, random forests, and Autoregressive Integrated Moving Averages.

A recent article by cfo.com shows that JPMorgan has 150 data scientists and engineers working with payment-flow data to refine its ML solution for cash-flow forecasting. Many major banks, such as Bank of America, Wells Fargo, and Citi Bank, also utilize artificial intelligence to automate their forecasting processes .

Using Data Analytics for Pattern Identification

Business analytics plays a role during the data consolidation phase in a cash flow forecast. You can use many statistical and mathematical models to generate a cash flow forecast, which is called predictive analysis. 

There are also analytic tools to help you present & visualize the data you have from a cash flow forecast; this information can be used to be presented to stakeholders and potential investors of your company. 

Here are business intelligence tools that can be employed to visualize cash flow forecasts:

• Microsoft Power BI 
• XLReporting

While Excel’s core features also allow you to visualize the information in the form of line graphs and charts. Finally, you can also use Python - a popular programming language data scientists use to visualize data using its libraries such as Numpy, Pandas, and Matplotlib. Which data analytic tool you use will depend on your current situation and the resources available.

Automation Reduces Human Error

Automated systems reduce human error because technology is consistent and able to run without fatigue, whereas a human being is prone to make mistakes. 

Automation in a cash flow forecast streamlines the workflow by automating approval processes, invoicing, and other financial tasks. This reduces delays and errors that may occur in manual workflows, ensuring a more efficient process.

It's common for analysis to be done manually with a finance team. However, bigger corporate companies teams with better access to resources tend to rely on automation to reduce the human error involved. Though budgets may vary, we would recommend using accounting software to generate your own cash flow forecast as a baseline.

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Does forecasting differ in terms of startup and corporate companies?

Yes, startups work with financial data on a smaller scale, so their forecasting methods will be more straightforward. While larger corporate companies are dealing with more complex structures, with diverse revenue streams. This means that larger corporate companies will need more sophisticated forecasting models.

Should I outsource my forecast or do it in-house?

For smaller-sized companies, outsourcing to a firm that specializes in cash flow forecasting can provide access to expertise and experience that you might not have in-house.

Do I need an emergency fund when my forecast shows challenges ahead?

If a forecast indicates challenging times ahead, it’s wise to start saving for a rainy day so that you will have peace of mind.

What if my projections don’t match up with the present?

It’s not uncommon for the predictions to be different from the actual outcomes coming from a cash flow forecast, as no model is 100% perfect in predicting something. Always be pivoting & revising your business plan, while revisiting your forecasts from time to time.

How often should I update my forecast?

For many companies, forecasts are updated on a monthly, or quarterly basis. But this still varies on a case-by-case basis depending on your unique situation and the current economic environment.

Axel has built a distinguished career in project management, focusing on the finance and insurance sectors. He started his career in 2011 in Japan, where he honed his skills at a prominent French Investment Bank, working with both the Finance and Ope...

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Cash Flow Forecasting: A Guide with Examples & How To’s

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Cash flow is the lifeblood of any business. The ability to accurately forecast cash flow is crucial for maintaining financial stability, making informed decisions, and ensuring your business’s long-term success.

In this comprehensive guide, we will explore cash flow forecasting in detail, including what it is, its benefits, types of forecasts, components, step-by-step instructions on how to forecast cash flow, real-world examples, common challenges, and tips for improvement.

What is Cash Flow Forecasting?

Cash flow forecasting is a financial management practice that involves estimating the future cash inflows and outflows of a business over a specified period. It helps businesses predict how much cash they will have on hand in the coming weeks, months, or years. Cash flow forecasts provide critical insights into a company’s ability to meet its financial obligations, fund operations, and make strategic decisions.

What Are the Benefits of Cash Flow Forecasting?

Cash flow forecasting offers numerous advantages for businesses, such as:

1.     Financial Planning:

It enables businesses to plan for their financial future, set goals, and allocate resources effectively.

2.     Improved Decision-Making:

Cash flow forecasts help in making informed decisions about investments, expenses, and debt management.

3.     Risk Management:

Forecasting allows businesses to identify and mitigate potential cash shortages or surpluses, reducing financial risk.

4.     Performance Evaluation:

Regularly comparing actual cash flow to forecasts helps assess a company’s financial performance and adjust strategies accordingly.

Types of Cash Flow Forecasts

Cash flow forecasts can be categorized based on their time horizon:

1.   Short-Term Cash Flow Forecast:

Short-term forecasts typically cover the immediate future, ranging from a few days to a few months. They are crucial for managing day-to-day cash needs, such as payroll and operational expenses.

2.   Medium-Term Cash Flow Forecast:

Medium-term forecasts extend for several months to a few years. They are often used for capital expenditure planning, budgeting, and assessing working capital needs.

3.   Long-Term Cash Flow Forecast:

Long-term forecasts look beyond a few years and are essential for strategic planning, such as expanding operations, launching new products, or securing long-term financing.

4.   Mixed Period Cash Flow Forecast:

Mixed period forecasts combine elements of short, medium, and long-term forecasts to cater to various financial planning needs.

What Are the Components of Cash Flow Forecasting?

A comprehensive cash flow forecast includes the following components:

1.   Cash Inflows:

This section outlines all the sources of cash coming into the business, including sales revenue, investments, loans, and any other sources of income.

2.   Cash Outflows:

Here, businesses list all the expenses and payments they expect to make during the forecast period, including operating costs, loan repayments, taxes, and other expenditures.

3.   Opening Cash Balance:

The opening cash balance represents the amount of cash on hand at the beginning of the forecasting period.

4.   Closing Cash Balance:

The closing cash balance is the projected cash balance at the end of the forecasting period, taking into account all inflows and outflows.

How Do I Forecast Cash Flow?

Effective cash flow forecasting requires a structured approach. Here’s a step-by-step guide on how to forecast cash flow:

1.   Determine Your Forecasting Objective(s):

Before you start, decide why you need a cash flow forecast. Are you creating it for short-term operational planning, long-term growth strategies, or debt management?

2.   Choose Your Forecasting Period:

Select the appropriate forecasting period based on your objectives. Short-term forecasts are best for daily operations, while long-term forecasts are ideal for strategic planning.

3.   Choose a Forecasting Method:

There are various methods to forecast cash flow, including direct cash flow forecasting, indirect forecasting, and the use of financial software or tools. Choose the method that suits your business’s complexity and data availability.

4.   Source the Data You Need for Your Cash Flow Forecast:

Gather accurate and up-to-date financial data, including historical cash flow statements, sales records, expense reports, and any other relevant financial information.

Cash Flow Forecast Example

To illustrate how a cash flow forecast works, let’s consider a simplified example for a small retail business.

This business wants to create a short-term cash flow forecast for the next three months to ensure it has enough cash to cover expenses and meet supplier payments. Here’s the forecast:

• Opening Cash Balance: $10,000 (cash on hand at the beginning of the month)
• Sales Revenue: $30,000 (expected monthly sales)
• Loan Proceeds: $5,000 (loan received)
• Rent: $2,000
• Payroll: $8,000
• Inventory Purchase: $10,000
• Utilities: $500
• Loan Repayment: $1,000
• Closing Cash Balance: $13,500 (calculated as opening balance + inflows – outflows)

This simplified example demonstrates how a business can project its cash position over a short period by estimating cash inflows and outflows.

What Challenges Can Businesses Face When Forecasting Cash Flow?

Forecasting cash flow can be challenging due to several factors, including:

1. Uncertainty:

Economic conditions, unexpected expenses, and fluctuating sales can introduce uncertainty into forecasts.

2. Data Accuracy:

Relying on inaccurate or incomplete data can lead to inaccurate forecasts.

3. Complexity:

Businesses with multiple income streams, expenses, and financial products may face more complex forecasting challenges.

4. Market Changes:

Rapid changes in the market can disrupt forecasts, making it difficult to anticipate future cash flows accurately.

Frequently Asked Questions:FAQs

1. how often should a business update its cash flow forecast.

The frequency of cash flow forecasting depends on the business’s needs and industry. Some businesses update their forecasts weekly, while others do it monthly or quarterly. During periods of significant change, more frequent updates may be necessary.

2. Can cash flow forecasting help with managing debt and loans?

Yes, cash flow forecasting is a valuable tool for managing debt and loans. It helps businesses plan for loan repayments, assess their ability to take on additional debt, and avoid cash flow crises that could lead to default.

3. How can businesses improve their cash flow forecasting accuracy?

To enhance accuracy, businesses can:

• Use historical data and real-time information.
• Consider various scenarios and sensitivity analysis.
• Continuously monitor and adjust forecasts as new data becomes available.
• Seek professional guidance from financial experts or consultants.

4. How can businesses adjust their operations based on cash flow forecasts?

Cash flow forecasts can inform decisions such as delaying non-essential expenditures, negotiating extended payment terms with suppliers, or pursuing short-term financing options during cash flow shortages. Conversely, surpluses can be invested or used to pay down debt.

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You’ll have your Profit and Loss Statement, Balance Sheet, and Cash Flow Statement ready for analysis each month so you and your business partners can make better business decisions.

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Conclusion:

Cash flow forecasting is a vital financial management practice that empowers businesses to plan for their financial future, make informed decisions, and navigate economic challenges with confidence.

Whether it’s for short-term operational planning or long-term strategic growth, the ability to forecast cash flow accurately is essential for financial stability and business success. By following the steps outlined in this guide and addressing common challenges, businesses can master the art of cash flow forecasting and secure their financial well-being.

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What Is Cash Flow Forecasting? How To Do It

Cash flow forecasting helps business owners understand how much money is flowing through their company, which can help them plan for growth.

Have you ever reviewed your business account to ensure that incoming payments align with your upcoming expenses? Or perhaps you've made a significant business investment, strategically spreading the cost over several financial periods to manage cash flow effectively.

If so, you’ve already participated in cash flow forecasting. 

In the accounting world, cash flow forecasting is a tool that allows companies to estimate net income over a given period of time. It helps business owners meet obligations, monitor expenses, and plan for growth. 

What is a cash flow forecast?

Cash flow forecasting is the process of estimating the amount of cash that will enter and leave a business over a given period.

Let’s say that an ecommerce business wants to run a 12-month cash flow forecast. If this business anticipates an inflow of $80,000 from online sales and an outflow of $30,000 for operational expenses over the next 12 months, it can forecast a net cash flow (or net income) of $50,000 for that period of time.

Direct vs. indirect cash flow forecasting

There are two different methods of cash flow forecasting: the direct method, which deals with known income and expenses, and the indirect method, which deals with projected income and expenses.

• Direct cash flow forecasting. Direct forecasting deals with known costs and this method is generally appropriate for short-term forecasting. A business might use direct cash flow forecasting at the beginning of a month, for example, to make sure that it will have enough working capital to pay end-of-month bills. 
• Indirect cash flow forecasting. This method makes long-term predictions. It involves using projected balance sheets (also known as pro forma balance sheets) and projected income statements. The indirect method also accounts for factors that affect profitability but don’t affect cash balance, such as depreciation on buildings and equipment. 

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How to forecast cash flow

Cash flow forecasting follows a repeatable process. 

• Prepare your cash flow statement
• Estimate upcoming sales
• Predict business expenses
• Use the cash flow forecast formula

1. Prepare your cash flow statement 

Start by picking a timeframe for your cash flow forecast. It can be short-term, like 30 days, or longer, such as a quarter or a year. 

Then, select a forecasting method based on your timeframe. For short periods, use the direct method by looking at your known income and expenses. For longer periods, use the indirect method to project future cash flow.

Next, calculate your estimated cash inflows, outflows, and starting balance. Add up expected gains like sales revenue and investment income for inflows. Then, sum up expenses like loan payments and payroll for outflows. Finally, note the starting cash balance in your accounts.

Using a cash flow projection template can simplify the process as it shows you where to plug your numbers, so you can understand how cash moves through your business.

📚 Read: What Is a Cash Flow Statement? + Free Template (2024)

2. Estimate upcoming sales 

Use past data from your financial and monthly income statements to predict cash inflows each month. If you’re a new business without a sales history, develop a sales forecast based on industry research, projecting sales for each month, not just for the year.

Then, list out how much you expect to earn per month by income type and other sources of cash, like asset sales, government grants, tax refunds, and licensing fees.‍ Add up the totals in each column to get your net projected inflows.

3. Predict business expenses

Next, estimate your fixed, variable , and one-off expenses. Fixed expenses don’t change. These include: 

• Business insurance

Variable expenses often fluctuate with your sales. These include:

• Raw materials
• Commissions
• Shipping costs

Go through your sales records to estimate expenses for each month of the next year. List out each type of expenditure or expense in the column you listed income types, then add up the expenses in each column to get your net projected outflows.

4. Use the cash flow forecast formula

Once you’ve calculated inflows, outflows, and starting cash balance, you’re ready to create your cash flow forecast.

First, calculate net cash flow by subtracting outflows from inflows. This formula reads: 

Inflows - Outflows = Net Cash Flow

Positive cash flows represent a business gain over the period of time in question, indicating that your business has more cash coming in than going out. This money can be used to invest in growth opportunities, pay off debts, or build a reserve for future expenses.

If you have negative cash flow, you're losing money. Negative cash flow can be manageable in the short term if planned for, but persistent negative cash flow means you're in trouble. You may need to reduce expenses, increase sales, or get more funding.

Next, calculate your closing cash balance, or how much cash your business is expected to have in its bank accounts at the end of the forecasting period. This number is calculated using the cash flow projection formula: 

Starting Balance + Outflows - Inflows = Closing Cash Balance

Cash flow forecasting software can automate large parts of this process, both improving the accuracy of your forecasts and making it quick and easy to consult updated cash flow projections. 

💡Use Shopify’s free cash flow calculator to understand your cash flow in under 5 minutes.

Cash flow forecast example

To help you create an accurate cash flow forecast, here’s an example to draw inspiration from and put your learnings into action. 

From this example, the business expects a cash shortage in March because of a negative cash flow. Knowing this in advance can help the business take measures, such as engaging more affordable vendors or finding cost-cutting measures to reduce overheads and prevent the foreseen shortage.

Cash flow forecast benefits

Cash flow forecasting provides many strategic advantages, from helping businesses pay off debt to maximizing returns on current assets.

• It can help businesses make informed decisions about cash outflow. Business owners prioritize potential investments constantly. Net cash flow can help you schedule expenditures strategically, whether it's a new hire, a marketing investment, or a facility investment.
• It can help businesses identify cash outflow patterns. Using cash flow forecasting to identify opportunities to reduce unnecessary expenses, you can track outflows. Additionally, it helps you ensure that all of your bills do not come due at the same time, so you don't have to carry too much cash.
• It can help businesses project growth or manage debt repayment timelines. Profits and losses can be anticipated over a quarter, a year, or longer. Developing a repayment timeline with cash flow projections can help your business take out a start-up loan, and reviewing monthly cash flows will help you determine if you are on track. Accrued profits are the same.
• It can help you put your funds to work. Most companies keep some cash in reserve. Beyond this, letting cash accumulate in your business bank account is unwise. You can free up funds by forecasting cash flow. You can use cash flow forecasting to invest in markets or grow your business.

Disadvantages of cash flow projections 

Keep these caveats in mind when creating cash flow forecasts.

• It can be inaccurate—particularly under an indirect method. Just like a weather forecast, a cash flow forecast represents a best guess at what future conditions are likely to look like based on current conditions and existing models. And, just like a weather forecast, cash flow forecasts can be wrong. This is particularly true for seasonal forecasts made under the indirect method. Even direct cash flow forecasting, however, can be inaccurate, as this method assumes that your debtors will pay their bills on time and that you won’t incur any unexpected expenses during the forecasting period.
• It doesn’t account for unforeseen events. Cash flow forecasting doesn’t account for a tree falling on your workshop or your cat tipping a glass of water onto your keyboard. Businesses tend to keep extra cash in reserve to deal with these surprise expenses. 
• It can be a time-intensive process. Even if you already operate on an accrual accounting method, your forecasting process will involve taking a close look at accounts receivable, accounts payable, and your balance sheet and either partitioning or extrapolating on these numbers to isolate your forecasting period—all before you begin your calculations.

Cash flow forecasting tips

So, how can you improve the accuracy of your cash flow forecast? Here are a few tips to help set you up for success:

• Remember annual payments. Include any expenses you pay annually rather than monthly in your cash flow forecast spreadsheet. Examples include subscriptions and insurance policies.
• Include estimated tax payments. When making your cash flow forecast, remember to include sales and non-sales income, like tax refunds in your cash inflows, and tax bills in your outflows.
• Account for seasonal fluctuations. If you anticipate a period of lower sales, include it in your forecast so you have enough cash on hand when business picks up again. 
• Remember savings. Allocate a portion of any cash surpluses to save for lean months.
• Be cautious with your predictions. It’s okay to be ambitious, but take a conservative and realistic approach to cash flow forecasts. 
• Use different layouts to provide greater detail. A detailed cash flow analysis can boost your chances of obtaining a loan or securing a large investment. Break down your annual forecast into month-by-month projections, then add each set of figures to get your annual forecast and predict net cash flow. 
• Account for extra pay periods. Ensure your projection accounts for months with extra pay periods. For example, if you pay employees bi-monthly, your forecast should consider months with more payrolls.
• Create a rolling 12-month cash flow forecast. Keep your forecast within 12 months. Longer reporting periods in your forecast make the process time-consuming and yield little valuable insight.

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Predict the cash flow of your business

Cash flow forecasting is a valuable tool in your strategic business development arsenal. It allows you to plan for the future and evaluate your performance relative to your predictions. 

Investing in an accounting method (or accounting software) that makes generating cash flow projections possible is wise. Just remember not to mistake predictions for certainty—and keep a little cash around for those (proverbial) rainy days.

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Cash flow forecast FAQ

What are the two 2 main types of cash flow forecasts.

The two main types of cash flow forecasting models are short-term and long-term. Short-term forecasts predict cash inflow and outflow over a month, quarter, or year, while long-term forecasts predict cash flow over a longer span, like five years or more.

What is the cash flow forecasting method?

Cash flow forecasting is the process of estimating cash inflows and outflows over a period of time. It's a key tool for financial planning and budgeting, as it allows a business to predict and plan for future cash needs. It also helps identify potential cash flow problems, so the business can take corrective action ahead of time.

How do you calculate cash flow projections?

To calculate cash flow projections, use the cash flow forecast formula, which looks like this: 

Beginning Cash/Cash on hand + Projected Inflows (invoices received and paid to your business) - Projected Outflows (expenses and payments) = Ending Cash.

How do you predict net cash flow?

• Determine your starting cash balance: Look at your company’s balance sheet to determine its current cash position.
• Estimate your cash inflows: Determine your expected cash inflows from sales, capital investments, loans, and other sources.
• Estimate your cash outflows: Estimate your expected cash outflows from expenses, capital expenditures, loan payments, and other sources.
• Calculate the net effect: Subtract your expected cash outflows from your expected cash inflows to calculate your net cash flow.
• Adjust for other factors: Consider other factors that could affect your cash flow such as taxes, currency fluctuations, and interest rates.
• Record your forecast: Record your cash flow forecast for future reference and use.

What is an example of a cash projection?

Let’s say your business has a starting cash balance of $50,000, projected inflows of $120,000, and projected outflows of $40,000. Using the cash flow forecast formula, your forecasted cash flow for the period will be $50,000 + $120,000 - $40,000 = $130,000 .

How to make a cash flow forecast accurate?

To make an accurate cash flow forecast, scope out your financial plan for the forecasting period, add up all forms of incoming cash and all sources of cash outflows, and maintain the data through consistent reporting and communication. Leverage cash flow projection templates and cash flow forecasting software to automate reporting, track important business metrics, and minimize potential forecasting errors.

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Cash Flow Forecasting Best Practices: What You Need to Know

February 1, 2024

If you’re looking to gain critical insights into where your business’s finances are headed, our cash flow forecasting best practices will help you do just that.

Much like a ship relies on its captain to navigate treacherous waters and ensure smooth sailing, a business counts on cash flow forecasting to identify risks and better plan for the future.  

The benefits of a cash flow forecast are many. It enables you to predict your business's financial future so you can plan for cash shortages, make the most of cash surpluses and measure performance against plans.

With the right cash flow analysis tools, you can work out if you need to reduce expenses or focus more time on generating sales. You can even see how specific changes – like launching a new product or entering a new market – will impact your finances.  

In this guide, we share the most useful cash flow forecasting best practices to help you get started. You’ll learn about the essential factors to consider when forecasting sales and tracking expenses, as well as how cash flow forecasting tools can simplify the process.  

What is the purpose of a cash flow forecast?

Let’s first start with the definition of cash flow forecasting. Put simply, it’s a financial process that allows businesses to project future cash inflows, outflows and balances over a specified period.

This entails estimating future sales and expenses as well as accounts receivable and accounts payable figures. Cash flow forecasts can focus on a future period ranging from the upcoming month to the next 12 months and beyond.

The purpose of a cash flow forecast is to provide a snapshot of your business’s future liquidity to anticipate cash movements and make better strategic decisions. It helps businesses avoid cash shortfalls, honour debt obligations and wisely invest cash surpluses.

In short, forecasting allows you to enhance future operations, look out for potential pitfalls and plan your business’s growth.

4 components of a cash flow forecast

A comprehensive cash flow forecast typically includes the following fundamental components:  

1. Opening cash balance

The opening cash balance reflects the initial amount of cash available at the beginning of the forecast period. This figure reflects your bank balance, whether positive or negative, and serves as the foundation for your cash flow projections .

2. Cash inflows

Cash inflows refer to the money expected to enter your business during the forecast period from a range of sources, including from sales, loans, dividends, tax refunds, corporate funding or rental income.

This component of cash flow forecasting involves projecting how much cash you will receive from each source, as well as when you will receive it. Historic financial and sales data, as well as analysis of market trends, customer behaviour and seasonal fluctuations can be used to inform estimates.  

3. Cash outflows

Cash outflows cover the expected expenses and payments exiting your business throughout the forecast period. These can include expenditures like salaries, rent, utilities, taxes, loan repayments, bank charges and interest payments.

It’s important to work out the amount you are likely to spend on these expenses and payments, and when you will need to do so. Invoices, payroll records, payment deadlines and supplier agreements can all be used to inform your projections.

4. Closing cash balance

The closing cash balance provides a view of whether your business has a cash surplus or deficit at the end of the forecast period. This involves adding net cash flow to your opening balance, which will reveal the residual amount of cash available.

With this figure, you gain a snapshot of your business’s financial health to help identify potential cash flow challenges and assess profitability. It also forms the opening cash balance for your next forecasting period.

Best practices for cash flow forecasting

Getting the most accurate results and fully reaping the benefits of cash flow forecasting requires factoring in multiple variables. This includes sales projections, expenses, as well as payments your business owes, and those owed to you, during the forecast period.  

Let’s look at how you can best capture this data and integrate it into your cashflow forecast .

1. Performing accurate forecasting

Forecasting involves estimating your business’s expected revenue over a specified period. In simple terms, it helps you predict how mucha business will sell and when.  

Forecasting means analysing a range of data concerning historic sales, market and industry conditions, customer behaviour and your current pipeline. It allows you to establish realistic sales goals, optimise inventory, effectively allocate resources and align business strategy with market demands.

To enhance your cash flow forecasting, consider implementing the following best practices:  

a) Ensure data integrity

Clean and comprehensive data is essential for accurate forecasting. If you’re a smaller business, you may even rely on data managed in spreadsheets.

Keeping data up-to-date and accurate across all these systems is the responsibility of everyone in your organisation – from sales reps to business leaders. Clearly communicating a culture of data hygiene and establishing robust data standards can help improve data entry practices and ensure regular updates.

You may want to appoint key people within your business to ensure data standards are applied and regular data reviews take place across different teams. All these long-term efforts will ensure your data will provide an accurate picture of the future.

b) Select the right forecasting method

There are a range of methods commonly used by businesses to forecast effectively. Each method has its own advantages and limitations, and choosing the right one depends on your business’s goals, available data and resources. Popular methods include:

• Direct forecasting: Predicts future values of a variable directly based on historical data to help determine short-term trends.  
• Indirect forecasting: Generally part of the planning and budgeting process, this long-term forecasting method can help determine broader strategic planning.  

c). Account for internal and external factors

While your historical data can lend insights into business trends, it may miss potential factors outside of its scope. It’s important to factor in changes that may not be captured in data and will impact future business trends, including those related to:

• People and policies: New hires or layoffs can divert attention from pursuing prospects, while updates to commission structures or pricing strategies can impact sales performance.
• Market expansion: Venturing into new territories or industries can significantly alter your business dynamics. New markets often demand increased efforts for customer acquisition, potentially prolonging cash flow cycles.
• Product and services: New features, plans or products can disrupt cash flow forecasts by influencing customer demand and behaviour. Even subtle tweaks to product offerings or pricing models can have profound ramifications on your cash flow.
• The economy: Fluctuating inflation, the possibility of recession or global supply chain issues can change market dynamics and customer purchasing behaviour.
• Industry dynamics: Fresh competitors entering your industry, new technology or changes to the supply of materials can all alter customer preferences and behaviors.  

d). Regularly review and update forecasts

Cash flow forecasts should not be static documents but dynamic tools that evolve with changing market conditions and business dynamics. It’s important to establish a regular cadence for reviewing and updating forecasts, ideally on a monthly basis. This will help ensure forecasts remain relevant and aligned with current performance and market trends.

2. Ensure detailed expense tracking

Expense tracking is fundamental to gaining visibility of your cash outflows, thereby allowing you to accurately forecast cash flow. This calls for a robust system to keep track of expenses including:

• Operational expenses: The day-to-day expenditures necessary for running the business, like utilities, rent, payroll, office supplies and marketing expenses.
• Capital expenditures: Investments in assets that provide long-term value to the business, such as equipment purchases, property acquisitions or infrastructure upgrades.  
• Debt payments: Interest payments and principal repayments on loans or lines of credit.  
• Cost of goods sold (COGS): The direct costs of producing goods or services sold by the business, including the likes of raw materials and production overheads.

Tips to help you keep on top of these expenses include:

• Making use of accounting software that streamlines the process of recording and monitoring expenses.
• Regularly analysing historical spending data to identify trends and patterns over time.  
• Creating distinct categories for different types of expenses, such as operating costs, marketing expenses, salaries and utilities.
• Implementing a receipt management system that allows employees to digitise receipts using mobile apps or scanners.  

3. Managing accounts receivable and accounts payable

To ensure accurate cash flow forecasting, it’s important to effectively manage all the payments owed to your business and those you owe to others. This involves factoring in the following accounts receivable and accounts payable considerations:

• Customer payment terms: The terms you offer customers that can impact the timing of cash inflows. This includes payment due dates, discounts for early payment and billing cycles.
• Supplier agreements: The payment terms you have negotiated with suppliers can affect the timing of cash outflows.  
• Outstanding payments: The customer payments that have not been paid by the due date that need to be chased up in the forecasting period, as well as those you may owe to suppliers or other parties.

Tips for improving accounts receivable and accounts payable management include:

• Sending invoices as soon as a product or service is provided to the customer, with payment terms clearly outlined.
• Offering multiple payment options to make it easier for customers to pay.
• Establishing a routine of regularly monitoring the payments owed to you.
• Keeping track of accounts receivable KPIs like Days Sales Outstanding and Average Days Delinquent, ensuring they are maintained at optimal levels.
• Setting credit policies that offer favourable payment terms to customers with good credit ratings, and stricter terms to those with poorer ratings.
• Reviewing aging accounts to ensure there are no outstanding payments.
• Creating a follow-up procedure for chasing late payments.
• Speaking to suppliers to negotiate longer payment terms.

Creating multiple scenarios

Once you have created your cash flow forecast, you can start experimenting with scenario forecasting . This technique involves amending your base level forecast by factoring in different underlying assumptions about future business performance, decisions, initiatives or possible upcoming events.  

For example, with the help of cash flow forecasting software , you can create a scenario that factors in expanding into a new territory or launching a new product. You can also create best or worst-case scenarios based on your base level forecast.  For instance, a scenario where you assume higher sales and lower expenses.

You can also create scenarios to assess the impact of external influences, like an economic recession, supply chain disruption or the introduction of new technology into your industry.  

Tools and technologies for cash flow forecasting

From spreadsheets to sophisticated cash flow forecasting software, there are a range of tools readily available to perform forecasting. Let’s look at some of the most widely used.

The pros and cons of spreadsheets

Given their flexibility and familiarity for most people, spreadsheets like Excel are an effective tool for basic cash flow forecasting. You can customise spreadsheets as you see fit, and they make it easy to enter and manipulate data. However, with this simplicity comes drawbacks.

Creating a cash flow forecast in a spreadsheet will require significant time and effort, taking anywhere from hours to days. You will also need to manually manipulate data whenever there’s a change to business circumstances, plus the lack of sophistication of spreadsheets means figures and calculations may include errors.

Cash flow forecasting software

Software for cash flow forecasting  like Fathom can provide more sophisticated functionality to create detailed cash flow projections, analyse various scenarios and generate visually appealing reports with ease.

Fathom offers several advantages over traditional spreadsheet-based forecasting methods:  

• Automated updates: Unlike static spreadsheets, Fathom automatically updates your cash flow forecast as your financials change.  
• Clear and actionable insights: Visualisations help you understand where your cash has gone and assess the quality, sustainability and fluctuations of your cash flow.
• Accuracy: You can trace the source of every figure in your forecast to ensure accurate and reliable projections.
• Flexibility: You can easily customise cash flow forecasts to account for various possibilities and changes with features like scenario planning.
• Advanced reporting: Comprehensive reporting capabilities make it easy to perform a variance analysis between actuals and your forecast.
• Integration: Fathom seamlessly pulls data from your accounting software, offering integration with the likes of Xero, Quickbooks and MYOB.
• Collaboration: Multiple users can work on cash flow forecasts simultaneously, eliminating the need for multiple versions of the same file.

You can gain an idea of how easily you can customise a cash flow forecast with Fathom in the video below.  

https://www.youtube.com/watch?v=YLEITcifQhI

Recap of takeaways

Cash flow forecasting is a powerful tool to help your business plan for potential cash shortages and identify areas where you can really move the needle in terms of financial performance.  

To truly get the most out of forecasting and simplify the process, make sure to:

• Structure your forecast around the four fundamental components – opening cash balance, cash inflows, cash outflows and closing cash balance.
• Create a robust system to forecast sales that ensures it is based on complete and accurate data, utilises the forecasting method best suited to your goals, and accounts for factors not captured in your data.
• Continually monitor cash outflows from operational, capital, debt and cost of goods sold expenses.
• Factor in all the cash you will owe, and that owed to you, during the forecasting period, and implement measures to ensure you get paid faster.
• Experiment with different forecasting scenarios to see the impact of specific variables, like increased sales, new product launches or economic conditions.
• Consider how cash flow forecasting tools can help you save time, automate the process and quickly implement the best practices we’ve shared. ‍

How you can start building your cash flow forecast today

If you want to avoid the complexities and limitations of spreadsheets, why not see how you can simplify cash flow forecasting with a free 14-day trial of Fathom ? Test out its features for yourself and see why it's trusted by over 80,000 businesses worldwide.

Fathom is designed with specific cash flow forecasting functionality that allows you to visualise your planning, test different scenarios and forecast up to five years into the future.

Live forecasts mean you’ll never have to worry that your data is out of date, and you can even create multiple forecasts for your different business units or departments.  

You can discover more about Fathom’s cash flow forecasting features in our help centre , while our blog contains a range of tutorial webinars and customer stories to explore.

Two of our most popular introductory webinars include our cash flow forecasting overviews for businesses and accountants.

Fathom is a cloud-based financial intelligence and management reporting app trusted by more than 50,000 companies worldwide.

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Cash Flow Forecast – What is It, Why Is It Important & How to Produce One

Allison S Robinson | 7 December 2021 | 3 years ago 0 0 0

Cash flow forecasts defined

What is cash flow, why is cash flow so important to a business.

What is meant by cash flow forecasting?

What does a cash flow forecast include, how do you do a cash flow forecast.

• First of all, you’ll need to make an estimate about how much money you expect your business to bring in over the next 12 months. You’ll need to consider your estimated sales revenue during this period, any unpaid invoices that are due to be received and any loan advances that you expect to receive.
• Then, you’ll need to make an estimate about how much money your company will spend within the next 12 months. Here, you’ll need to consider any business expenses, loan payments and employee wages.
• Once you’ve got these figures, enter them into your cash flow spreadsheet. You can then subtract your cash outflow from your cash inflow.
• If your income exceeds your expenditure, you’ll end up with a positive number, which indicates that your business is expected to be profitable. If your expenditure exceeds your income, your business will make a loss. If this is the case, it’s worth reviewing your planned expenditure to explore whether there is anywhere that you can make cuts in your spending.

What is the main goal of cash flow forecasting?

Why is cash flow forecasting important, why is cash flow forecasting difficult.

Why do banks want cash flow forecasts?

Cash flow vs revenue – the difference, related questions, what is a statement of cash flows, what are the limitations of a cash flow forecast, about the expert, related topics.

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• Building Your Business

How to Create a Cash Flow Projection for Your Business

Doing so can give you a more accurate financial outlook

What Is a Cash Flow Projection?

• How to Create One
• Revising Your Cash Flow Projection

The Bottom Line

andresr / Getty Images

A cash flow projection provides an estimate of how much cash is expected to flow in and out of your business within a specified time period. This statement includes expected sales figures and any flow of money, namely loans or equity funding received, and expenses forecasted within the timeframe—which includes operating expenditures, and capital and financing expenditures. Because it can both impact your overall finances and ultimately help you grow your company, it’s important to understand how to create, update, and manage the cash flow statement.

Key Takeaways

• A cash flow projection is used in business to estimate how much cash is expected to flow in and out.
• Business owners and entrepreneurs can create cash flow projections by simply using a spreadsheet, document, or software offered by banks. 
• To create a cash flow projection, you’ll need to determine the time frame, calculate all revenue and costs, and create a simple chart to fill in all financial data for corresponding months or weeks.  

Purposes of a Cash Flow Projection

A cash flow projection is used to determine the estimated amounts of cash that are expected to flow in and out of the business. It is essentially a forecast of where the business expects to generate income and where that money is expected to go out. 

Businesses use the cash flow projection for various purposes, though it is generally created to keep track of income and expenses. It’s important to learn how to create a cash flow projection properly so that you can have an accurate outlook on your business’s finances. 

Cash flow analysis can also help to prevent insufficient funds by identifying potentially challenging areas early on. 

How to Create Your Cash Flow Projection

To create a cash flow projection, you can either use a spreadsheet, document, or software that will provide easy-to-use templates and can even keep track of your cash flow automatically. If you decide to do it yourself, you’ll need to create a chart with several columns and rows to display all the relevant information. The top column represents the months or weeks, and the left row includes the different types of cash inflows and outflows (income and expenses, respectively). You’ll then fill in the amounts within the corresponding columns and rows. 

Here is a sample version from Microsoft:

Once you’ve decided how you are going to set up the document, there are a few steps to follow as you begin filling it out. 

Choose Your Time Frame

When you begin to create your cash flow projection, you’ll need to decide on the time frame you’ll be covering. This can include the upcoming months or weeks depending on how far out you want to forecast your cash flow. You can opt for a long-term projection or a short-term projection. With the latter, however, you may be able to identify what regular expenses are too costly, which can help you develop a more accurate forecast. 

The cash flow projection can be adjusted along with your business plan. You should update your cash flow projection as changes are made within your business.

Estimate Sales and Revenue

Reporting your business income accurately is crucial to creating your forecast. To properly calculate business income, you’ll need to include all income that goes into the business. You’ll also need to know your total revenue , which is a combination of the sales made by the business and income from other sources such as grants, investments, and royalties. Each of the different types of income are listed on the left column of the statement with the amounts filled in the rows for the corresponding months.  

Being realistic is key to creating an accurate cash flow projection. In other words, you shouldn’t focus only on higher-end sales, try to round your numbers up, or enhance them in any way. 

This ensures your estimate is based upon realistic factors and, therefore, can generate a more realistic and accurate projection.    

Estimate Expenses and Other Cash Out

Just as all income is needed on a cash flow projection, so is all the debt incurred by the business. You’ll need to report all current and upcoming expenses for the time period of the projection, which can vary from business to business. Like income, the types of expenses incurred should also be included on the left column of the statement if they need to be paid within the specific time frame of the projection. Some examples of these expenses include: 

• Operating expenses such as rent and utilities
• Charges associated with bank loans
• Money spent on marketing and advertising efforts

Make sure to include all expenses relating to the business so that your numbers are accurate.

When creating your cash flow projection, you can include subsections of your expenses on the left column so that you can stay organized with your data. This way, you can consider listing expenses that are specific to your industry and have an impact on your overall cash flow. 

Use and Revise Your Cash Flow Projection

Once you’ve included all revenue and expenses, you can begin to calculate your cash flow projection on the bottom row by subtracting the outgoing cash from the incoming cash and entering the totals. You can then figure out whether you have a positive or negative cash flow. A positive cash flow means you have more money coming in than going out. A negative cash flow means you have less money than the amount going out for expenses and bills.

If you find you have a positive cash flow based on the data, you can then make financial decisions about your business knowing that you can afford it. On the other hand, if you calculate a negative cash flow, you can look into areas where you can cut costs so that you prevent owing more than you bring in. It’s important to keep your cash flow statement updated with recent data as this will improve accuracy. As changes are made within your business, make sure to revise your cash flow projection so it consists of recent trends and data.    

How Do You Improve Cash Flow?

To improve your cash flow, you’ll want to increase the amount of cash going into your business so that you can pay all debts and possibly have extra cash flow to improve or upgrade your business. To increase your sales, you can consider conducting more research about competitors, targeting your products for specific customers, and adjusting prices to potentially increase overall sales. Minor changes, such as accepting more methods of payment at checkout. could also have an impact on revenue. 

What Is Free Cash Flow?

Free cash flow is the amount of cash left after operating expenses, dividends, and capital expenditures are deducted. It is used to provide insight into a business’s ability to pay interest owed and how it can reduce its debts as well as inform other business decisions.

As a business owner, freelancer , or entrepreneur , it’s important to understand how and where cash flows in and out of your business. A cash flow projection can help you determine where your business stands within a specific time frame, whether that includes the upcoming months, weeks, or just a few days. Listing all income and expenses is key to being accurate with your projection. Having small differences between your estimated figures and your actual figures is workable if there is only a small percentage in the variance. Always make sure to keep it updated and revise as needed.

Microsoft Office. " Small Business Cash Flow Projection ."

Wells Fargo. " Creating a Cash Flow Projection ."

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Business Planning

• Cash forecasting best practices for midsize businesses

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Cash forecasting is the process of estimating the amount of cash inflows and outflows your business is expected to have over a specific period, usually a few months to a year. It helps you anticipate how much cash your business will have on hand at any given time, allowing you to make informed decisions about spending, saving and investing. 

While most midsize business owners understand the importance of cash forecasting, many don’t recognize how critical it is to positioning a company for reliable, sustainable growth. 

Download our e-book to learn more about:

Implementing cash forecasting best practices

Cash flow vs. cash forecasting vs. cash positioning

Avoiding financial, operational and reputational risks

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Cash Flow Forecasting Software

Never worry about bouncing a check

Know how much cash you’ll have next week and next year with a simplified cash flow forecasting tool.

As seen in:

Managing cash flow in spreadsheets can be frustrating, liveplan’s cash flow planning software simplifies cash flow management with automatic updates & visual reporting.

Sync your accounting data to minimize manual work

LivePlan’s cash flow management software pulls in your accounting data to instantly create a starting point for your forecast. Then it updates your actuals for each month so you can compare them to what you projected.

Syncs with Xero & QuickBooks

Visual reporting helps you understand the data

With easy-to-understand charts and graphs, LivePlan’s cash flow management software helps you think about all your key business metrics.

• Forecast both cash flow and profit to get a complete picture of your finances.
• See actuals versus forecast side-by-side.
• Spot opportunities to adjust your business model so you can stay cash healthy.

Be ready for anything with multiple scenarios

Build multiple forecasts to understand your best-case and worst-case scenarios. That way, you can plan for every situation.

Answer questions like:

• Will my business have enough cash?
• What type of loan should I apply for?
• Where should I reduce expenses?

Compare your metrics to similar industries

Compare your forecasts to benchmark data from businesses like yours with our cash forecasting software. This helps you figure out if your projections are realistic or if you need to rethink them.

• Profit metrics
• Cash metrics
• Productivity metrics
• Spending metrics and more

Apply for bank or SBA loans with confidence

Your forecast will cover everything a lender or investor expects to see.

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If you’re applying for a SBA loan, bank loan, or preparing for an investment, you’ll have all the financial statements you need at your fingertips.

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Get suggestions for revenue streams, expense types, and other forecast categories that are specific to your business.

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Discover a simpler way to manage your cash flow

Frequently asked questions, can i integrate liveplan’s cash flow forecasting with other accounting tools, is there any initial setup required to start forecasting cash flows with liveplan, how often can i update my cash flow forecasts in liveplan, what security measures does liveplan implement to safeguard financial data, can i export cash flow forecasts from liveplan for external use.

13 Proven Strategies to Solve Cash Flow Problems for Your Business

Cash flow problems can sneak up on you. One moment, everything seems fine, and the next, you're scrambling to cover payroll or pay a supplier. We get it—cash flow issues are stressful and can disrupt your entire operation. Missed opportunities, strained vendor relationships, and even the risk of bankruptcy can all stem from poor cash flow management.

What are cash flow problems?

Cash flow problems occur when a business doesn't have enough cash on hand to cover its expenses. This can happen for various reasons, such as delayed customer payments, unexpected expenses, or poor financial planning.

Examples of cash flow problems businesses face include late payments from clients, high inventory costs, and seasonal fluctuations in sales. These issues can create a cash crunch, making it difficult to meet financial obligations. Cash flow problems impact business operations by causing delays in payments to suppliers, inability to invest in growth opportunities, and potential layoffs. The consequences of unresolved cash flow issues can be severe, leading to damaged credit, loss of business reputation, and even bankruptcy.

Understanding operating cash flow is crucial for identifying and addressing cash flow problems. By gaining insights into your cash flow, you can take proactive steps to mitigate these issues.

13 Proven Strategies to Solve Cash Flow Problems

1. implement accurate cash flow forecasting.

Analyze historical cash flow data to understand past trends and patterns. This helps in identifying regular cash inflows and outflows, allowing you to predict future cash needs more accurately. Project future cash inflows and outflows based on these historical trends, considering factors like seasonal fluctuations and market conditions. Use cash flow management tools to automate and streamline this process, providing real-time insights and reducing the risk of human error.

For a detailed guide on this, check out our cash flow forecasting article. Implementing accurate forecasting can significantly improve your cash flow management.

2. Optimize Your Cash Conversion Cycle

Streamline inventory management by adopting just-in-time inventory practices, reducing excess stock, and freeing up cash. Improve sales and collections processes by ensuring timely and accurate invoicing, and implementing efficient follow-up procedures for overdue payments. Negotiate favorable supplier payment terms to extend payment periods, allowing more time to convert inventory into cash before payments are due.

3. Establish Strong Liquidity Management

Analyze your liquidity position regularly to ensure you have enough cash to meet short-term obligations. Maintain adequate cash reserves to cover unexpected expenses or downturns in revenue. Secure access to credit facilities, such as lines of credit, to provide a financial cushion and improve your ability to manage cash flow fluctuations.

If you're turning a profit but running out of cash , it's essential to manage your liquidity effectively.

4. Enhance Receivables Collection

Implement efficient invoicing systems to ensure invoices are sent out promptly and accurately. Offer early payment incentives to encourage customers to pay their invoices ahead of the due date. Follow up on late payments systematically, using automated reminders and escalating to collection agencies if necessary.

Understanding operating activities cash flow can help in better managing receivables and collections.

5. Streamline Payables to Preserve Cash

Negotiate extended payment terms with suppliers to delay cash outflows. Consolidate supplier payments to reduce transaction costs and simplify cash management. Establish clear payment policies to ensure consistency and avoid late payment penalties.

6. Utilize Budgeting and Planning Tools

Create realistic budgets based on historical data and future projections. Track and control expenses to avoid overspending and identify areas for cost savings. Analyze financial performance regularly to ensure you are on track with your budget and make adjustments as needed.

Learn how to prepare a cash flow statement to enhance your budgeting and planning efforts.

7. Proactively Manage Debt

Monitor debt levels and interest rates to ensure you are not over-leveraged. Develop a debt reduction plan to pay down high-interest debt and improve your financial position. Assess and manage customer credit risk to avoid extending credit to customers who may not be able to pay.

To effectively manage debt, it's crucial to calculate cash ratio and understand its implications.

8. Regularly Review Cash Flow Strategies

Conduct frequent financial reviews to assess the effectiveness of your cash flow strategies. Identify issues and make adjustments to address any problems. Evaluate the impact of strategy changes to ensure they are improving your cash flow situation.

Consider exploring sales-based underwriting as a new financing solution during your regular reviews.

9. Leverage Technology for Efficiency

Implement cash management software to automate and streamline cash flow processes. Automate cash flow processes such as invoicing, payment collection, and expense tracking. Utilize online payment platforms to speed up collections and reduce processing times.

Understanding direct vs indirect cash flow can help in leveraging technology for more efficient cash management.

10. Explore Financing Options Strategically

Consider lines of credit to provide a financial cushion for short-term cash flow needs. Evaluate term loans for larger needs, such as equipment purchases or expansion projects. Look into invoice financing solutions to access cash tied up in unpaid invoices.

Learn how business credit cards for cash flow can be a valuable tool for managing cash flow gaps.

11. Identify and Address Revenue Shortfalls

Review sales and marketing strategies to identify areas for improvement and boost revenue. Conduct market analysis to identify new opportunities and target markets. Diversify revenue streams to reduce dependence on a single source of income.

For e-commerce businesses, effective e-commerce cash flow management can help address revenue shortfalls.

12. Maintain Adequate Cash Reserves

Assess short-term cash needs regularly to ensure you have enough cash on hand. Plan for unexpected expenses by setting aside a portion of your cash reserves. Regularly review and adjust reserves to ensure they remain adequate as your business grows and changes.

Read more about how much cash to keep on hand to maintain adequate reserves.

13. Create a Cash Flow-Conscious Culture

Educate employees on the impact of cash flow on the business and their role in managing it. Implement and enforce spend policies to control expenses and avoid unnecessary spending. Incentivize cash flow-positive behaviors, such as cost-saving measures and timely invoicing, to encourage employees to contribute to the overall financial health of the business.

Managing a cash budget is crucial for fostering a culture that is conscious of cash flow management. Learn more about how to manage business cash budget .

How Ramp Can Help Improve Your Cash Flow

We know that managing cash flow can feel like a juggling act. Ramp's spend management platform offers a comprehensive solution to streamline your financial operations. The platform provides real-time visibility into your expenses, helping you make informed decisions and optimize cash flow.

Automating accounts payable with Ramp reduces manual entry and errors, speeding up the payment process. This automation ensures timely payments, improving relationships with suppliers and avoiding late fees.

Utilizing Ramp's bill pay solution simplifies the payment process. You can schedule payments, track due dates, and manage all your bills in one place, ensuring you never miss a payment.

Leveraging Ramp's analytics for cash flow insights provides detailed reports and forecasts. These insights help you identify trends, spot potential issues early, and make strategic decisions to maintain a healthy cash flow.

Ready to solve your cash flow problems and streamline your financial operations? At Ramp, we help you save time and money with our comprehensive spend management platform. Discover how our tools can transform your business finances by visiting Ramp Pricing . Let us help you build a healthier, more efficient business today.

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