When you’re running a business, it pays to be forward-thinking and plan for what lies ahead.

While it’s impossible to predict every aspect of the future, especially with how changeable the economy has been over the past few years, there are ways to get ahead and put yourself in good stead.

Cashflow forecasting is one such useful tool used by many business people to try and prepare for the coming months of trade.

If you’re unsure how to create and use a forecast, this guide will give you the necessary information.


What is a cashflow forecast?

Simply put, a cashflow forecast is an analysis of your market and business, using previous data to try and find trends in your income and outgoings. 

A forecast is often used alongside a budget to estimate how much money will be spent on labour or inventory while also estimating your sales and profit.

By having an accurate cashflow projection, you’ll be able to look ahead and plan to invest, expand into another market, take on bigger premises or employ more staff.


How to create a forecast

The best place to start with your forecast is by deciding how far you wish to plan for. If you’ve been in business for a few years, you’ll be able to look back on the previous year’s sales as a basis for your projections. 

If you’re a newer business, you won’t have the data you need to forecast a year ahead accurately, so you’re better off planning in weeks rather than months.

Your next step will be to list all sources of income your business has. Start with your sales, but remember you should only be counting money that is actually in your bank. In other words, only add money into the forecast once your client’s invoices are settled, or bank payments have cleared.

Other sources of income need to be added to the forecast too. Tax refunds, grants, investments from shareholders or owners or even royalties and licence fees should be accounted for.

Once you’ve noted all your income, you’ll need to work out all your outgoings. Some of your outgoings will be the same every month, like rent, loan payments or even tax bills. 

Some of your outgoings will be more changeable, such as Salaries, raw materials, inventory and marketing/advertising, but you should still be able to get a rough estimate. 

With your totals calculated, you can start to work out your cashflow. To start, deduct your net outgoings from your net profit. If you’re left with a positive cashflow, then your forecast will show you’ve got more money coming in than being spent.

You can keep a running total from this point on, from week to week or longer. If you have too many weeks with negative cash flow, you’ll need to plan on how to work around this. 

If that’s the case, consider cutting down on your business expenses. If you can afford to hire less staff for a few weeks or cut down on your ordering, you should be able to improve your cashflow.

At James Scott, we can help you put together a cashflow forecast or just help you with simple cashflow management techniques. Just reach out to our team for more information.