When most finance professionals hear the term “13 week cash forecast,” they view it as a burden-one more task to appease an overbearing lender. The fact is that one of the earliest lessons I learned in business was that balance sheets and income statements are fiction, cash flow is reality. Why Every Business Should Build Weekly Cash Flow Forecasts If there is a deficit in the week end cash balance, either draw on the credit facility or figure out how to increase receipts or decrease disbursements. Lastly, subtract disbursements from cash receipts for net cash flow. Then stratify vendors into critical and non-critical vendors, paying critical vendors first.
Running a small business can be unpredictable, so you’ll need to adjust your plan accordingly. The second is true for all forecasts, including a break even analysis – it’s only your best estimate. The first is that if you use unrealistic numbers, it won’t give you an accurate forecast. While planning and forecasting mostly puts your business at an advantage, there are a couple of drawbacks to using a cash flow forecast.
For example:Īs it’s a forecast, you can adapt it to suit different conditions that are out of your control – for example, economic booms or downturns Your cash flow forecast doesn’t have to be too complicated – essentially, you need 12 columns (one for each month), with space to add both the money coming in and going out during that month (you can split this out in the rows underneath).Įach income or expenditure type should also have its own row. If your plan is out of date, it won’t be of any use to you. You should also update your cash flow forecast if you perform differently than expected – both positively and negatively. While your cash flow forecast should be your best estimate, it doesn’t need to be accurate to the penny, so use round numbers. You’ll need to plot timings too, so you can plan for both busier and quieter months.Ī cash flow forecast is an important part of the business plan – it helps prove viability, especially if you’re looking for investment.Ī year is a good time period to forecast, because your figures beyond that might not be realistic. Cash flow forecast – essential for planningĪ cash flow forecast shows your best estimate for the amount of cash coming in – and leaving – your business over a specific period (usually a year). Otherwise successful businesses can quickly start to struggle without easy access to cash, so understanding cash flow is one of the best ways to plan – both for when business is booming and when it might not be so great.įor example, businesses with staff still have wages to pay, even if they go through quieter periods when cash isn’t coming into the business.Ī cash flow forecast helps that business understand when it might suffer those quieter periods, so it can be prudent with its money at other times of the year. A cash flow definition is simply the money that you have coming into (and leaving) your business.