Ask successful entrepreneurs what they think is most important to include in their business plans, and they might say "accurate cash flow forecasts." Cash flow is critical to business success, so making a good cash flow forecast is essential.


A cash flow forecast is an forecast of the amount of money you think you can bring into your business and how much you expect to spend. It also includes all of your detailed projected income and expenses. Typically, the forecast looks ahead to 12 months, but can also cover shorter periods such as a month or a week.


The cash flow forecast acts as your "warning system" - it warns you of an imminent shortage so you can quickly set up a contingency plan and tell you if you will make more money than you thought. With access to more cash, you can then decide whether you can afford to hire new staff, start introducing new products, rent more space for your operations, or invest in new technology to increase your productivity.
The cash flow forecast will also help you track how quickly your customers are paying their invoices. Always remember that as a wholesale business you get the most of your profits from orders, so timely payment is important.


Preparing an accurate cash flow forecast can take some time, especially if this is your first time. But having prepared your first forecast, the next one will be easy, because you will have a template. Working with a professional accountant or using an accounting system will generate all the critical data you need, but if you are just starting out or don't have the funds to buy the app, You can do the forecast yourself using a spreadsheet.
Creating the basic cash flow forecast will take several hours, and then updated by one more hour each week.
It depends on your ability to use the Excel program, or your willingness to spend your money on purchasing one of the many cash flow forecasting applications available.

There are 5 steps in making a cash flow forecast:

Step 1: Prepare a List of Assumptions

Cash flow forecast are driven by assumptions and therefore for the forecast to be useful the underlying assumptions must be business appropriate.
Assumptions can be based on industry publications, correspondence from customers and suppliers, past performance, etc. And generally include:
  • Time and price increase quantum - both yours and your suppliers
  • Estimates sales growth
  • Season impact
  • Allowance for general cost increases
  • Allowances for internal wages and wage increases
Listing assumptions in forecasts adds credibility serves as a reminder when assess actual performance against forecasts.

Step 2: Prepare Anticipated

Sales Revenue Sales can be difficult to predict, and often the best place to start is to look at past years of sales to identify trends. You can then identify internal (eg price increases) and external (eg economic) factors that may be affecting the current period, and make adjustments as necessary.

When you have determined realistic sales for the period, they will need to be broken down into sales receipts (eg when is cash expected to be collected from debtors?). Often there is a pattern in debtor's remittances (eg 60% in term, 25% one month out of terms with the remainder coming soon after). Note: this pattern should form one of the assumptions on which the forecast is based.

Step 3: Prepare an forecastd List of 'Other' Cash Inflows

To ensure your cash flow forecast is complete, list all other anticipated cash inflows, for example:

  • Insurance proceeds
  • Additional equity contributions or loan proceeds
  • Government grant receipts
  • Cash from asset divestments
  • Royalties or franchise / license fees

Step 4: Prepare a List of forecastd Costs

This should include both direct and indirect costs. The key is to identify all the costs required to run the business and anticipate the timing of each payment. Cash outflows related to financing and investing activities should be included, for example:

  • Payments to suppliers
  • Wages and salaries of all staff
  • Purchases of new assets
  • Loan payments
  • Director's drawings

Bank statements are an easy way to identify direct debit arrangements.

Step 5: Putting the Information Together

Simply put, cash flow forecast is a rolling calculation based on the opening cash position, adding cash inflows and subtracting cash outflows, to arrive at the closing cash position. Finally, it is a good idea to run some 'what-if' scenarios on the finished forecast for determining how much capacity your business has in the face of an unexpected event.

Cash flow forecasts allow a business to track expected cash movements over a future period of time. In general, when it comes to their expected future profits and losses, business owners tend to know their business inside out. They know what margin they will make for each product or service they offer, and have a good understanding of their overhead costs.


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