Cash Flow Forecasts

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Cash flow forecasts predict…

- Cash flow in- Cash flow out- Cash left…for a given period (usually a year)

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• Forewarns any cash flow shortfalls or peaks

• Helps business owners prepare for them

• Exposes debt collection issues

Benefits of cash flow forecasting:

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Cash is…

... any liquid asset…

…that can be turned into cash to pay an urgent debt

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Cash flow forecasting in 4 steps:

1. Identify cash in2. Identify cash out3. Calculate net cash

flow4. Adjust bank balances

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Step 1: Identify cash in

Cash in can be…-Cash sales-Interest on savings-Debts repaid -Cash from a loan

… plus other types of easily accessible income

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Step 2: Identify cash out

Cash out can be…-Purchases-Utility bills-Wages

… however, depreciation does not count even though interest counts as a “cash in” source

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Step 3: Calculate net cash flow

Subtract “cash out” from “cash in” to find net cash flow

The equation is simple - the hard part is accurately identifying the sources defining the flow of cash

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Step 4: Adjust bank balances

Add net cash flow to bank balance for the beginning of the month to predict what’s going to happen by the end of the month

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Just be careful…

At the end of every month you can compare forecast to reality Just make sure you leave the correct closing bank figure in your records…If you don’t future forecasts will be inaccurate

Find Out More

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