Cashflow is the lifeblood of your business. But you might sometimes struggle to make a cash flow forecast – particularly if you’re a small business, or if you’re new to the business world.

This is your essential guide to cashflow forecasting. We’ll explain what it is and why it matters, before exploring ways you might better predict cashflow in your business.

What is a Cashflow Forecast?

When we say “cashflow”, we’re not referring to a single process. The term refers to multiple processes that take place all at once – the continuous movement of money in and out of your business and your bank accounts over a certain period of time.

Cash will continuously flow both in and out of your business. Sales, loans, funding and investments can all cause cash to flow into your business. At the same time, paying your employees, suppliers, rent and taxes will cause cash to continuously flow out of your business.

A cashflow forecast is a prediction of how much money will flow in and how much money will flow out of your business accounts over a set period – usually 12 months.

Why is a Cashflow Forecast Important?

A cashflow forecast essentially enables you to plan for the future. If you can accurately predict how much money is going to flow into your business over the coming year, you can plan for growth – whether that’s through expanding your workforce, opening new premises, launching new products, acquiring new equipment or investing in research and development.

Meanwhile, understanding how much money is going to flow out of your business in the coming year can help you manage risk. Your forecast will also give you an overview of how various areas of your business are performing, so you’ll know where to focus your efforts in the coming year.

All businesses should make cashflow forecasts, but they’re particularly important for new businesses and fast-growing businesses. A good forecast can help your fledgling business survive those uncertain early years, while ensuring that any growth is sustainable for the long-term.

How to Make a Cashflow Forecast

New businesses often struggle with cashflow forecasts, as there won’t be any previous years’ figures to refer to. So unfortunately, when it comes to making cashflow forecasts, new businesses must often resort to making best estimates.

It’s ironic that the sort of business that could most benefit from an accurate cashflow forecast is the sort of business that will find it hardest to make an accurate cashflow forecast!

What should you consider when making your cashflow estimate? All the money that could conceivably come into your business over the next 12 months, along with every possible expense:

• Expected sales – Again, it’s hard for new businesses to make a cashflow forecast based on expected sales, as you’ve no previous sales figures to refer to. So consider delaying making your cashflow forecast for a month. See how you do on sales over the course of a four week period, and base your likely sales figures on this performance. But at the same time, don’t forget to account for seasonal and market trends.
• Marketing – Set aside a marketing budget – that’s cashflow out of your business. But also consider how marketing might impact on your sales. Adjust your expected sales figures in line with your marketing campaigns.
• Projected Payments – Whether it’s loans, investments, or other capital, account for all your sources of income beyond sales over the course of the next year. Don’t forget to account for the timing of these payments. Allow for delays in your estimates.
• Fixed Costs – Expenses like rent, bills, business insurance, staff salaries, subscriptions, and tax payments will be fixed amounts. They should stay the same regardless of how your business performs.
• Variable Costs – These are the expenses that depend wholly on how your business performs. You might set aside a figure for recruitment, for example. And the higher your sales, the more you’ll have to spend on restocking and your supply chains.

Review and Revise Your Cashflow Forecast Periodically

If you’re a new business, the figures you use in your cashflow forecast will most likely be educated guesses. But this shouldn’t be a problem so long as you commit to routinely reviewing and revising your cashflow forecast.

On a set day each month, compare your estimated figures to your actual figures. Are you hitting those predicted sales figures, for example? Maybe you’re exceeding them! In any case, once you have more information to hand, you can adjust your cashflow forecast where necessary. It’ll soon be clear whether your estimates were realistic, and you’ll know where to make changes if not.

One Fixed Expense No Business Should Do Without

One of the major benefits of a cashflow forecast is that it can help your business manage risk, especially in those uncertain early days. But business insurance is an even more reliable safety net when it comes to risk. Business insurance helps to ensure that you’ll be able to recover from any business crisis, with little to no interruption to your cashflow.

So make sure you account for insurance payments in your fixed costs calculation. The good news is that business insurance might not be as expensive as you expect.

At Tapoly, we specialise in comprehensive business insurance policies tailored to suit your unique business requirements. You won’t pay for any cover you don’t need, there are no hidden costs, and our cover starts at just 35p a day. Get in touch to get a free quote.

If you have any questions or would like to discuss your options please contact our Tapoly team at info@tapoly.com, call our help line on +44(0)2078460108 or try our chat on our website.