Cashflow is the lifeblood of any business. Without cash utilities, staff and suppliers don't get paid, and having a consistent view of the current and expected cash position is critical for any business to survive and thrive.
What is Cashflow Forecasting?
Cashflow forecasting is the process of estimating the flow of cash in and out of your business over a specific period. It helps ensure you have enough cash to cover expenses and plan for growth. Cashflow forecasting differs from the income statement in that it depicts actual cash entering or leaving the business, whereas the income statement (or P&L statement) depicts figures for accounting purposes. Both are required for effective business management.
Why is Cashflow Forecasting Important?
For SMEs, effective cashflow forecasting can:
- Ensure bills are paid on time, preventing unpleasantness, time wasting, and undermining confidence
- Take advantage of supplier discounts (early payment discounts and bulk-purchase discounts)
- Help secure investment funding in the form of debt and equity because investors like to see good cash-flow management in a business (builds confidence that they will get their money back)
- Enable proactive planning
Key Components of a Cashflow Forecast
- Opening Balance – Cash available at the start of the period
- Cash Inflows – Sales, loans, investments, interest received, cash from sale of property
- Cash Outflows – Rent, salaries, utility bills, supplier payments, and loan repayments
- Net Cashflow – Difference between inflows and outflows
- Closing Balance – Cash available at the end of the period
Step-by-Step: How to Create a Cashflow Forecast
- Choose Your Forecasting Period (weekly, monthly, quarterly, annually). Investors want to see monthly, quarterly and annual cash-flow forecasts
- Estimate Cash Inflows (based on sales forecasts, business plan, loan, and investment interest schedules)
- Estimate Cash Outflows (fixed and variable costs)
- Calculate Net Cashflow (inflows minus outflows)
- Monitor and Update Regularly (compare forecast vs. actuals)
Tools You Can Use
- Microsoft Excel or Google Sheets – Custom templates
- Accounting Software (e.g., Xero, QuickBooks, SAGE) – Built-in cashflow tools
- Cashflow Forecasting Apps – Float, Pulse, Futrli, Intuit
Tips for Better Forecasting
- Update forecasts regularly
- Plan for worst-case scenarios
- Use historical data to inform estimates
- Involve your finance team or accountant
- Visualise your forecast with charts and graphs
Common Pitfalls to Avoid
- Overestimating income
- Underestimating expenses
- Ignoring seasonal fluctuations
- Not reviewing forecast accuracy and checking with knowledgeable colleagues or advisors
- Using outdated data
How the Hertfordshire Growth Hub Can Help
We offer:
- 1:1 Business Advice
- Workshops and Webinars
- Tools and Templates
- Connections to local experts and mentors
Get Started Today
Need help creating your cashflow forecast? Contact us at:
www.hertsgrowthhub.com
enquiries@hertsgrowthhub.com
01707 952777
