A cash flow forecast can be one of the most important tools in managing your finances. It tracks all of the money flowing in and out of your business and can reveal payment cycles or seasonal trends that require additional cash to cover payments.
It is useful to prepare your profit and loss forecasts in conjunction with your cash flow forecasts. Understanding your profit projections including the level of sales required to breakeven and how and when this converts to cash flow is also important.
You may find the links below useful in developing your financial projections:
You may find the following tips useful when completing your financial statements but it is also important to consider obtaining professional advice in developing your financial statements from either your accountant or professional business advisor at this stage of your business planning
Take out the guesswork
It’s vital to have the most accurate and up-to-date data in your forecasts as possible. If you simply guess or make up figures, you’ll be setting your business up for an unrealistic outcome. It is therefore important that you can demonstrate the basis of assumption for any of your projections both in terms of the cash coming in and out of your business. Whilst this will potentially require detailed and careful research, you should end up with a more accurate financial forecast.
As a business owner, it’s only natural to want to see the best possible financial outcomes for your business. But when you’re creating your forecast, it’s important to be realistic with your projections. If you’re business is just getting started or is in a period of uncertainty, you could create three different projections – a negative (least favourable) projection, realistic (most likely) projection and an optimistic (best case) projection. This can help you plan and strategise for a wider range of outcomes.
Cash is the lifeblood of your business and it is vital that you closely monitor the financial performance of your cash flow projections. By comparing your forecasts against your actual financial results, you can continually fine tune your business management and develop strategies to meet any new challenges ahead.