The Power & Impact of Cash-Flow Forecasting

Cash will always be king within any business. Profit is all well and good but as your customers take longer and longer to pay invoices,  as you start to deduct your well deserved drawings or dividends, pay your tax bill, incur a few bad debts and keep the banks happy with all those capital loan repayments, cash can quickly drain out of the bank leaving you with little or nothing for yourself or, more crucially, your staff and key suppliers.

Without cash or a very supportive bank even a profitable business can soon come to a sticky end – planning ahead and monitoring your cash keeps you in control.

Cash-flow forecasting and monitoring is one of the most effective ways for any business owner to keep a close watch on the financial health of their business. Not only does it warn you of possible cash-shortfalls giving you time to contact the bank, chase a few overdue invoices or delay some of your own outgoing payments, it also allows you to budget and track both income and overheads month by month. You can see at a glance if supplier costs have started increasing and either renegotiate or review your own prices to increase income.

Here is an example of a simple Cash Flow Forecast Template downloaded from Excel which will give you an idea of what is needed and help get you started. The income and cost categories should be updated to reflect your own business – key income streams should be separated out so that you can monitor each individually (e.g. products, departments, services) as should the major costs. Other income and costs can be amalgamated into broad categories but make sure everything is included – have a look at your latest annual accounts and use the categories shown in your profit & loss statement.

Spend as much time as needed to estimate income and outgoings month by month using previous bank statements, accounts and your own knowledge of the business – remember that costs tend to increase year after year. Don’t forget to include loan repayments, dividends, tax payments, any equipment you are planning to buy and those easily forgotten annual payments which tend to be high and often overlooked. Sole traders and partnerships need to include your planned monthly drawings.

Enter your opening bank balance and let the cash-flow show you how things will pan out over the next 12 months. If bank balances seem to be continually falling or are significantly lower at the year end than at the start then you may have to go back and look at how to increase income or reduce costs. Better to find out now than 6 months down the line when it may be too late.

Once you have a workable forecast for the next 12 months it is really important to update with actuals and monitor against your forecast – this can be done weekly or monthly using your bank statement. Cash-flows can have a second column included for each month’s actuals which makes tracking against forecast easier but with the simple cash-flow you can create a second copy of the forecast and over-write the forecast figures with actuals month by month – this will then update the closing bank balances for the rest of the year and highlight any future cash problems.

Keep a copy of the original forecast so that you can quickly see where any variations in income or costs have come from – regularly check for variations in excess of 10%, highlight and make plans to correct these before they do too much damage. Cash-flow forecasts can be designed to flag-up these variations to make life easier.

Remember that we are tracking cash – sales only go in once your customer has paid and you have banked the money so bad-debts and slow-payers will soon start to show. The closing bank balance on your statement should always balance with the closing balance on your cash-flow if everything has been entered correctly.

Also remember that the forecast bank balances are as at the start and end of the month –  there needs to be enough cash or overdraft facility available to cover timing differences between receipt of income and your payments out during the month. If cash is tight always allow time for income to be received during the first couple of weeks before your start making large payments – one reason why most business pay suppliers towards the end of the month.

Cash-flow monitoring is a valuable management tool for any business which is easily maintained on a weekly or monthly basis. The business planning and thought needed to set the forecast up is in itself an essential, useful exercise and well worth the effort.

If you would like help with setting up a bespoke cash-flow forecast and tracking system for your business please contact



The Power & Impact of Cash-Flow Forecasting

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