A cash flow forecast is a way of predicting how much cash flow will be available to your business in the future. By looking at your projected income and expenses, you can get a clear picture of how much your business needs to earn to be profitable, and whether you can afford to take on new staff members or make purchases for your business.
Cash flow forecasting helps you plan for the future. By modeling out predicted profits and losses, you can make better decisions about how your business runs.
Cash flow forecasting is all about the difference between your income and expenses. Here’s a simple way of creating a cash flow forecast:
Step 1: Calculate your regular expenses, by totaling up everything you pay on a regular basis, and an estimate of any ad-hoc expenses. It helps to look back over previous months to see how much you spent in order to get an accurate figure.
Step 2: Look back at how much your business has made in revenue over the past 6-12 months, and take an average of what that looks like month-on-month.
Step 3: Plot out your predicted income and expenses for the upcoming period (e.g. 3, 6 or 12 months) and measure how profitable your business can be. You can model out different scenarios to get a clearer picture of how extra income or expenses can impact your business.
Step 4: Review your forecasted cash flow and leverage that information to find ways to maximize your cash flow. As an example, if you run a product-based business, could you run a sale to increase revenue? If you’re a service-based business, could you increase your rate to make each hour more valuable?
With PocketSmith, you can make cash flow forecasting easier and more accurate than ever. By exporting a cash flow statement for your chosen period, you can clearly see your income, expenses and profit/loss at a glance. Plus, you can build out your own cash flow forecasts in minutes, up to 30 years in the future.
It’s normal to encounter cash flow forecasting challenges in business, particularly if you’re new to this kind of planning. Some important things to consider to maximize accuracy and applicability include:
Ready to take on the world of cash flow forecasting? Let PocketSmith help you out.
Emma Edwards is a finance copywriter and blogger, on a mission to humanize the financial services industry by creating meaningful content that’s accessible and empowering. You’ll find her penning money tips at her blog, The Broke Generation, sharing financial insights on Instagram, or injecting life into content for her business clients.