Finance Essentials – How to Build Cash Flow Forecasts

Finance Essentials – Cash Flow Forecast

“Happiness is a positive cash flow.”

Fred Adler

Having a handle on your cash flow is one of the most important aspects of business management – because cash is the life blood of any business (even not-for-profit and social enterprise).  

Money makes the world go round!!

Cash Flow forecasting sounds complicated, but it should be very simple and relatively easy – it’s mostly about finding the model that works for your business, that makes sense to you.  

The more complicated you make something, the less likely you are to maintain it.  Equally, if you have someone producing reports for you, make sure you can read them – if you don’t understand them, then they are a waste of time!!

“The three most dreaded words in the English Language – Negative Cash Flow.”

David Tan

This example shows the sample business from August – forecasting the cash position based on the sales being comparable to the previous year.  All things being equal, this business should be building some cash reserves and has the capacity for further investment using its own cash.  

Each month the cash flow forecast is reviewed and the timing of cash moved according to any changes in circumstances.  Always start with the current cash position.

At first using this model might seem a bit fiddly, but with practice, it becomes a useful tool to test the cash resilience of the business.  

Using different scenarios, you can see what the cash impact is:

  • on a drop in sales; or
  • a sudden increase in costs
  • a large future purchase commitment
  • a bank loan repayment

There are endless examples

If you are considering a large purchase or an expansion of your workforce, using the cash flow forecast will show how your cash reserves will last, and what sales you will need and when.  This allows much more effective decision making.

The cash flow forecast is a living model, and changes with every piece of new information added.  Understanding what it is showing you and being able to update it and undertake “what if” scenarios is an essential tool in the armoury for knowing your numbers.

Don’t worry about looking dumb, worry about BEING dumb – ask questions!”

Do you feel like you have no control or don’t understand your numbers? Discover how you can feel more in control of your business, make your business worth more AND make it easier and more fun to run. Click here to contact Christine by email alternatively you can book a call with the Business Mentor of the Year 2020, author and speaker. Who helps business founders get their businesses in better shape so they can enjoy a happier, richer future.  She saves them THOUSANDS and increases the value of their businesses by MILLIONS.