The Cash Flow Forecast

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.

* 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.
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.

Cash flow improvement through invoice finance

It may be stating the obvious, but the number one reason for using invoice finance is to generate immediate cash (up to 90% of invoice value) to pay wages, tax bills, suppliers etc. This means happy employees, discounts from suppliers and, most importantly, a lot less stress for the business owner. In addition, a business which is already trading (as opposed to a start-up) can release a lump sum cash injection from its current sales ledger. Start an application now from Ashley Commercial Finance the friend of small business with T/O up to £3m.

Relevant Articles

• The Balance Sheet
• The Profit & Loss Account
• Cash Budget