The How, What, and Why of Cash Flow Forecasting

A spot of financial planning can really help when it comes to managing cash flow in a business.

What is a cash flow forecast?

A cash flow forecast helps a business plan the availability of cash over a period of time. It shows the money that is likely to be paid in and out, such as expected sales figures (money in) or staff costs (money out).

What’s the difference between a cash flow statement and a cash flow forecast?

Cash flow is all about making sure there is enough money coming in to cover the money going out. For example, making sure your customers pay you in enough time so that you are able to pay your suppliers and staff.

The cash flow statement looks at the past performance of your cash flow, such as in the last month or quarter. It can help you identify any regular financial pinch points, such as a customers who are frequently late paying their bill.

It’s not necessarily an indicator that the business is failing, especially in very small or start-up organisations, just that the financial buffer isn’t big enough to cope if money coming in is delayed. A cash flow forecast looks at the future, so you can try to avoid these pinch points, or know when to expect them.

How far should my financial forecast go?

Just like any forecast, the further into the future it goes, the less chance of it being accurate when the time comes.

A cash flow forecast typically looks at the year ahead, but keep in mind that if things change you can update the figures in your forecast whenever you need to.

How to create a cash flow forecast

The easy way of creating most types of financial report is by using your accounting software, if you have it. Our own Pandle software can produce a cash flow forecast at the simple touch of a button based on previous financial data.

To make a basic forecast manually, try creating a table under three headings. Let’s use a 12 month forecast as an example. To be as accurate as possible, your cash flow forecast should try to include all of your expected sales and costs.

  • The first heading will detail all of the expected revenue each month, for the next 12 months.
  • The second heading will show all of the expected money out each month, over the next 12 months.
  • The third heading shows your net figures each month – hopefully a positive amount!

If you’d like more information about using Pandle, just hit the Live Chat button on screen to speak to one of our team.

Elizabeth Hughes

A content writer specialising in business, finance, software, and beyond. I'm a wordsmith with a penchant for puns and making complex subjects accessible.

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