By Paul Smith, Business Adviser


At its base level, cash flow is a way of charting money that enters and leaves your business. Depending on the type of business you run, how frequently sales are made, and how often cash gets spent, cash flow is a mechanism to keep track of those movements at a detailed level.


Cash flow forecasting is part and parcel of business planning. When I first speak to new businesses I ask if they have a business plan, and as long as they have a one or two-page document that outlines the purpose of the business, its target market and a cash flow forecast, that’s generally enough for me to assess whether or not it’s likely to be successful.

Why a template is the perfect starting point

Cash flow forecasts are best created on a spreadsheet, where you put the income at the top, and below that the direct costs, which are proportional to whatever it is you’re selling (i.e. if you sell one, it costs X, and if you sell two, it costs X), and finally your indirect costs, which are the day-to-day overheads and expenses.

It’s best to do this on a month-by-month basis, because you can see when you need to have cash in the bank to cover expenses. For instance, if you’re forecasting a big outlay for new equipment or external consultancy, you’ll be able to see and account for it in your cash flow forecast. A classic example is the accountant’s bill, which will typically come in annually; your spreadsheet will predict when you need to have money in the bank to pay for it.

I’m not a fan of business plan templates because they can be unwieldly and daunting, but I’m quite a big proponent of cash flow forecast templates (the Growth Hub has some great examples we can provide). If you’re comfortable with spreadsheets, you can make your forecast as complex as you like, but it doesn’t need to be complicated. The great thing with spreadsheets is that you can use formulas to create “what if?” scenarios; what happens if you change the cost of a particular overhead? What would the effect be on labour and part costs if you sell more of item A?

The basic principles of cash flow forecasting don’t really differ between industries, but the timelines might vary. For instance, if you’re selling high ticket items that are sold more infrequently and your monthly outgoings are relatively consistent, the cash flow forecast can work on a broader timeline, but most enterprises still forecast on a monthly basis.

Seek help – it’s worth it!

We always encourage people to ask for help before creating a cash flow forecast, if only to get input on the right direction. I come across a lot of people who don’t want to undertake the business planning stage, but by giving them a little bit of encouragement and asking them to record their plans in a document, they usually find the inspiration they need.

When it comes to cash flow forecasting, considering your costs is generally quite straightforward, but a lot of businesses struggle to predict where the income will come from. This is why I encourage people to focus on the costs, because that gives them a sense of what they need to sell in order to break even. Providing you’re willing to be honest about how much you can realistically sell, you can then work out how to make a profit!

A common mistake we see with cash flow forecasts is not anticipating or being honest about every cost, and confusion over staff overheads; i.e. how salary is recorded versus costs like national insurance contributions. That’s why some assistance is certainly recommended, along with a good working knowledge of Microsoft Excel.

Surviving without a cash flow forecast

Can businesses survive without cash flow forecasts? Possibly, but they would be taking significant risks. For instance, if a decision needs to be made about hiring a new person or buying new equipment in the future, you can’t make an accurate or safe decision without knowing what the cash position is likely to be.

In business you can very quickly run out of money. For instance, if you pay for something on a credit card, you’ve simply borrowed money and put the business in debt. That’s not necessarily a bad thing, but without a cash flow forecast, you’re sitting on a time bomb; what if you don’t have enough income when the bill needs to be paid?

The living document

Cash flow forecasts should be checked each month to assess your actual cash flow against the planned one (you can track this in your spreadsheet to see how close your predictions have been).

The worst thing you can do is to create a cash flow forecast and review it infrequently or not at all. An up-to-date forecast gives you a much better appreciation of where your business is now, and where it’s likely to be in twelve months’ time.

A cash flow forecast is a living document, and if a business is looking to borrow money or gain external investments to support its growth, the people providing the funding will expect to see an up-to-date forecast.

If you’d like help with your cash flow forecast, our gateway advisers are waiting for your call. They’ll assess your requirements and either assist by providing a great spreadsheet template or forwarding your details onto an adviser like myself. Contact us today!

Comments are closed