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BizHelp24 has created a Cash Flow Forecast template that is available in our BizStart24 software.
What is a Cash Flow Forecast? The Cash Flow Forecast is the most important aspect of accounts preparation, be it 'Management Accounts' - the accounts prepared by a company for internal management use, or accounts prepared for a lender, such as a bank to evaluate how you will be able to repay the funding. Where the Balance Sheet and the Profit and Loss account are primarily prepared for your 'actual' year end figures for submission to Companies House, the Cash Flow Forecast needs to be, some say, pessimistic as to your sales figure and expenses. One problem we all face at some stage is preparation of a Cash Flow Forecast for the bank manager. It is 'almost' impossible to submit honest figures when you use pessimistic figures - when you look at the finished result you say to yourself 'I would not give anyone a loan if I saw these figures'.
However, I suggest you do use pessimistic figures and inform the lender that the figures are pessimistic, and as such, are very achievable. Returning to your lender 6 - 12 months after arranging a loan or overdraft facility, and asking for more funding because your original figures were way out, will not impress the lender.
Cash Flow Forecast Example
The example below evenly spreads out all costs. In reality, utilities, lease, etc are paid quarterly, some in advance, others in arrear. It is advisable to enter the proper amount in the month that the payment is due to ensure you are aware of the highs and lows of your cash requirements. However, the example below is a good tool for setting out your budget.
In most cases, a business should forecast for a 12 month period. However, we have cut our example down to 3 months...just so that you get the idea. In addition, we have simplified the content (listings on the left-hand-side) to make it easier to follow and understand.
All figures in £
| Open | Jan | Feb | March | INCOME
| Sales
| | 3,000 | 3,000 | 3,500 | Capital In
| 10,000 | | | | TOTAL INCOME
| 10,000 | 3,000 | 3,000 | 3,500 |
| FINANCES / ASSETS
| Loan Repayments
| | 100 | 100 | 100 | Interest Paid
| | 10 | 10 | 10 | TOTAL FINANCES / ASSETS
| | 110 | 110 | 110 |
| DIRECT COSTS
| Materials
| | 150 | 150 | 200 | Direct Labour
| | 300 | 300 | 350 | TOTAL DIRECT COSTS
| | 450 | 450 | 550 |
| EXPENSES
| Salary
| | 1000 | 1000 | 1000 | Office Rent
| | 100 | 100 | 100 | Telephone
| | | | 100 | Utilities
| | | 100 | | Insurance
| | 100 | | | TOTAL EXPENSES
| | 1,200 | 1,200 | 1,200 |
| OPENING BALANCE*
| - | 10,000 | 11,240 | 12,480 | TOTAL INCOME
| 10,000 | 3,000 | 3,000 | 3,500 | TOTAL OUTGOINGS
| - | 1,760 | 1,760 | 1,860 | NET CASH FLOW*
| 10,000 | 1,240 | 1,240 | 1,640 | ENDING BALANCE*
| 10,000 | 11,240 | 12,480 | 14,120 |
* Negative figures would be denoted by ( ) i.e. - £500 = (500)
The last five rows of the forecast are:
Opening Balance - This figure is the ending balance of the previous month
Total Income - This is the total income figure for the month (highlighted in blue).
Total Outgoings - This is the combined total of the outgoings (highlighted in yellow). In this case, we have three outgoing costs for each month (finance, direct costs and expenses).
Net Cash Flow - This is the difference between the total income and the total outgoings. It is worked out by subtracting the total outgoings from the total income.
Ending Balance - This is the ending balance at the end of the month. This figure is obtained by adding (or subtracting if it is a negative net cash flow) the net cash flow to the opening balance of the month.
How 'Credit' Will Affect the Cash Flow Forecast
If you offered, say, 1 month's credit to your customers, you would enter the sales figure in the month that you would be paid. For example, if a customer makes a purchase of £200 in January with one month's credit - you would include the figure in the February sales.
If you want to view a more detailed cash flow forecast, you can download our FREE spreadsheet (Excel) which you can edit and use in your business.
Forecast Figures vs Actual Figures
The following example is an effective method for recording forecast figures against actual cash. Most PC spreadsheet packages (like Excel) can be set up to your needs. I suggest you set up six months of forecast and actual, giving a total of twelve columns.
| | Nov | Actual | Dec | Actual | Jan | Actual | Feb | Actual | 01. Open Bal
| (263) | (263) | (231) | (224) | (199) | (90) | (167) | (92) | 02. Total Cash In
| 250 | 260 | 250 | 255 | (250) | (240) | (250) | (256) | 03. Total Cash Out
| 218 | 221 | 218 | 210 | (218) | (242) | (218) | (215) | 04. Net Cash Flow
| 32 | 39 | 32 | 45 | (32) | (2) | (32) | (41) | 05.Closing Bal
| (231) | (224) | (199) | (90) | (167) | (92) | (135) | (51) |
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