Before you make weekend plans, odds are that you will check the weather forecast. Why? So you can plan ahead and be prepared. The same is true for your business. You need to be prepared with a cash flow forecast. This projection is a core component of financial management. Here is a closer look at cash flow forecast and how it will help your finances.

What is a Cash Flow Forecast?

A cash flow forecast is a plan that shows how much money a business expects to receive in (income), and pay out (expenses), over a given period of time. This is an estimate that compares income and expenses for a period in the future. The key to having an accurate cash flow forecast is having good information. Cash flow problems are one of the main reasons new businesses fail.

How Do You Begin?

You can begin your cash flow forecast by using your accounting software, or there are a lot of other templates available. The manual steps are as follows:

  • Find beginning balance for the period you are forecasting
  • Estimate incoming cash for the period you are forecasting
  • Estimate expense for the same period
  • Add beginning cash and expected incoming cash
  • Subtract expenses from cash. (if this is a negative evaluate income and expenses)

Your cash flow forecast should:

  • Be updated regularly
  • Makes sensible assumptions
  • Allow for unexpected changes
  • Be realistic

Your cash flow forecast will give you advance warning of cash shortages, so you can plan and hopefully avoid them.

Know Your Numbers

Cash Flow forecasting is important because cash is the lifeblood of a business, especially if you are a new business and unlimited financing not readily available. To me this is an important part of financial control. Again, know your numbers. This will help you sleep at night by relieving stress.

The bottom line is your cash flow forecast gives you a clear picture of where you business is headed during a certain time frame. It can show you where you need to make improvements (ie. earn more income or spend less cash.)

If you need assistance please reach out and I can help you begin. We help your dollars make sense.

cash flow forecast and your financial planning

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