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A cashflow forecast is an important management report as it shows how cash is expected to flow in and out of the business and whether you might experience any cash shortages in the future.

Here are 5 steps to follow to help you start preparing a cashflow forecast:

1. Decide on the period you want to cover

Cashflow forecasts can cover a few weeks, a few months or even years!

It really all depends on what you intend to learn from preparing the forecast or what you intend to use it for.

For example, if you need a cashflow forecast as part of a bank loan or government grant application they will usually look for a forecast that will cover 12 to 24 months.

Alternatively, you may just want to prepare a forecast to use internally to try and see where your cash position is likely to be next month or next quarter.

2. Estimate what you expect your cash receipts from your trade are likely to be

Look at what invoices you have out for payment at the minute and, based on credit terms or past payment history of customers, estimate how many of these invoices will be paid and when.

Look at you orders book or sales pipeline to see what sales you are likely to make over the period covered by the cashflow and again estimate when these would likely be paid.

3. Take a look at your recurring expenditure and overheads

When looking at what expenses to include in future cashflows it is best to look to the recent past to see what recurring expenditure should be included.

For example, your monthly rent payments, staff salaries and expenses, software and IT subscriptions are just a few items that will probably continue at the same level into the foreseeable future.

4. Consider any once off receipts or expenses

Are you expecting a once off grant or tax refund? Maybe you expect to draw down a bank loan in the period covered by the cashflow.

On the expense side maybe you are looking at investing in a new piece of equipment. Or are there once off bonuses that need to be paid to staff?

Consider any once off income or expense items before completing your cash flow.

5. Stress test the cashflow

Once you have had a first attempt at completing the cashflow it is advisable to “stress test” what you have prepared.

This first attempt could be called your base case scenario.

Some people then like to look at what would happen if things worked out slightly worse than this base case plan.

How would a delay in payment from your customers affect things? What if you underestimated certain expenses by 5-10%?

Alternatively, maybe things might work out a bit better than planned.

It is always good to run a couple of different scenarios to see where that would leave cash reserves.

We’re here to help

If you are having difficulty preparing detailed accurate cashflows then TaxAssist Accountants are here to help.

We can prepare cashflow reports for bank and grant applications or just for clients to use for their own internal reporting. Contact us to book your free initial consultation.

We also have a free cashflow forecast template which you can download here

Date published 22 Apr 2020 | Last updated 22 Apr 2020

This article is intended to inform rather than advise and is based on legislation and practice at the time. Taxpayer’s circumstances do vary and if you feel that the information provided is beneficial it is important that you contact us before implementation. If you take, or do not take action as a result of reading this article, before receiving our written endorsement, we will accept no responsibility for any financial loss incurred.

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