Preparing a cash flow forecast

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Last updated on February 28, 2018

Your cash flow forecast helps you predict what cash will be available to meet the expenses of your business, over a nominated period of time.

Your cash flow forecast is one of the most important management tools in your business. It shows the expected flow of cash in and out of your business and predicts your bank balance at the end of each month. It also highlights potential issues, giving you time to find ways to either prevent problems or minimise their impact.

A cash flow forecast is a plan. External events may cause variations in actual performance compared with what you have forecasted, but your cash-flow forecast will help you get your business back on track, through the process of review.

Preparing your cash flow forecast

You can prepare a cash flow forecast manually, using the checklist we provide, or use computer software packages that streamline the procedure.  Your accountant can also be a source of major assistance.

Using your cash flow forecast

Refer to your cash-flow forecast at least monthly and insert 'actual' results. Then compare forecasted results to actual performance and calculate variations, both positive and negative. This will highlight how well you are doing and enable you to take corrective action if necessary. Learn what is working and what is not.

Conduct a review immediately after the end of each month – timing is more important than total accuracy.

Be prepared to use your cash-flow forecast as a communication tool with key staff and stakeholders outside your business. This could include your bank, other lenders, your accountant and major suppliers if you are seeking to negotiate extended terms.

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