A Cash Flow Forecast is a fantastic tool for planning. It’s about predicting money coming in and money going out and the resulting balance during the same short time period (usually a month) across a longer time period (e.g. a year).

Drawing up a cash flow forecast can help you see what your real bank balance might be at any point in the near future. This is powerful as it helps you run scenarios, analyse the outcomes and plan your expenditure, sales and credit control effectively – better to get it wrong on paper first then work out what you do need to do to get it right for real.

Here are some tips for creating your own cash flow forecast

· Start with the things that are known then put in Reasonable Expectations for the unknowns.

· Record the income and the outgoings then the ‘Bottom Line’ is one taken from the other.

· The bottom line is your Bank Balance and the end of each month is the start of the next.

· Once you have some figures you can see how much expenditure is needed to support the level of sales.

· Vice versa applies – you can see what level of sales is required to support the business costs.

· Plan some expenditure and see what effect it has on your bottom line.

· Work it through over a year and you will be somewhere near the actual figures – as long as you are sensible.

· Having done a year do not wait until it has ended – re do it in 3 or 4 months so you always have your best prediction for the next few months and the full year planned ahead.

· It is not an Accounting exercise – put down what actually is going to happen in real cash.

Remember a cash flow forecast is exactly what it says on the tin…

CASH – it’s cash coming in and out of your bank account, not what you have invoiced. Include VAT if relevant.

FLOW – it’s not a BUDGET ! It is the flow of money that you get a picture of.

FORECAST – It’s your best guess at this point now. Your Reasonable Expectancy is what counts, not what you want to fancy is possible.