Cash Flow forecasting is an essential part of business planning.
It will allow a business to plan and forecast when costs will arise over the next year, and also to establish what its revenue will be.
Why do this?
Forecasting will allow you to predict highs and lows in your cash balance. It allows you to plan how much and when to borrow, and how much available cash your business is likely to have at any given time.
If you are approaching the bank for a loan, they might ask to see a monthly or quarterly cash flow forecast.
Elements of a cash flow
Typically, a cash flow forecast will include:
- Receipts: This will be an estimate of the money, which is set to come in during that period.
- Payments: This section will detail the payments that the firm expects to have to make during the year.
- Net Cash Flow: This will show the difference between the total payments and the receipts. Negative figures will be shown in brackets.
- Opening Balance: This shows the money that a firm has carried over from a previous month.
- Closing Balance: This is the difference between the net cash flow figure and the opening balance.
Advice
When creating your cash flow forecast, please remember to be realistic and, if you have an established business, base your predictions on the same period 12 months earlier.
If you need further advice on cash flow forecasts, please call us at Brilliant At Bookkeeping on 0845 519 0364 or email info@brilliantatbookkeeping.com.
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