How to forecast cash flow


Predicting the amount of cash leaving and entering your business each month, over a period of time, is the essence of a cash flow forecast. By accurately forecasting the cash flowing in and out of your business during the next 12 months, you’ll have a clearer idea of when you’ll have shortfalls and excess.


How to forecast cash flow

Before your business starts up, you won’t have the opportunity to rely on prior years’ cash flow statistics.

Consider creating conservative, balanced and optimistic forecasts so you can make informed decisions that factor in a wide range of scenarios – like whether your debtors pay quickly or not.


Benefits of forecasting

A cash flow forecast will help you anticipate the consequences of business decisions, such as purchasing more inventory, offering more generous terms on your receivables, and hiring extra staff.

By planning thoroughly, you’ll be able to make each decision strategically without risking a cash flow crisis. If you haven’t prepared a cash flow projection before, it will take some time but will be a valuable asset to help keep your business above ground.


Why cash flow forecasts are important

There are a number of reasons why you should prepare a cash flow projection, including:

  • To plan solutions that will meet cash flow fluctuations created by market conditions beyond your control.
  • To create a day-to-day management resource that allows you to monitor your cash position and avoid a cash crisis.
  • To show that your business is planning ahead, not only for yourself but also for when you need to approach your bank for finance.

The first cash flow forecast you create will be the most difficult. After preparing the first one, you’ll have a baseline version from which you can model the next – with the aim of improving your forecasting over time.


Cash flowing out of your business

There are two flows of money that influence your cash flow forecast – money coming in and money going out.

Cash that flows out of your business is in the form of expenses. To create an accurate cash flow forecast, you’ll need to account for all of your business’s outlays.


Calculating expected expenses

Make a list of all your expected expenses. Some may be fixed monthly costs, like an Internet usage bill. Others might take some work estimating, such as a power bill that can change significantly depending on the season.

Shop around for the best price on , insurance, phone, Internet, and office supply deals for your business. Speak directly with these companies to see if your business can save a few  euros here or there.


Cash flowing into your business

Cash flowing into your business is primarily in sales.


Forecasting sales

Forecasting sales isn’t easy when you’re just beginning – you don’t have any historical data to help your predictions. At this stage, your cash flow forecast will be useful for attracting investment and getting bank loans.

Go about your forecasting of sales by basing your predictions on the performances of similar businesses that sell comparable products or services.

Ensure you look at businesses that sell their offerings to the same customer demographic and ideally in the same location. Search out your local census data so you can find out how many people in your target area fit your customer profile. Use this information when you write up your cash flow forecast.

Think about how large your initial customer base is likely to be, aiming to build on it over time. How much will each customer spend in a single transaction?

Conduct some market research on potential customers to find out how much they might spend – the average of these results can give you a beginning point.

Useful links
CONTACT US 800 00 800 / (+357) 2212 8000 EMAIL US