One of the
things that is even more important to a business than profit is cash. Even a
business that is making a profit can potentially fail to survive if the cash
position is not good.
Since nearly
every small business will at some time find itself suffering from cash flow
problems it is important to try and plan ahead and figure out when a cash flow
problem could potentially arise. This is done
via a Cash Flow Forecast.
Most
businesses will have a Cash Flow Forecast that looks ahead for a minimum of 3
months and often for a whole 12 months. These Forecasts are generally “rolling”
forecasts which means that each month you drop your actual month and add the
next month in sequence doing any adjustments to the months already forecast as
appropriate.
The main
difference between a Profit Forecast and a Cash Flow Forecast is that a Cash
Flow Forecast specifically looks at the cash position of a business. In other
words it doesn’t take into account those costs, such as depreciation, which
have no direct impact on the cash position. All
businesses benefit from having a Cash Flow Forecast, and even more so if their
sales are seasonal. Many businesses can be quiet just after Christmas or during
a summer holiday period. By planning for these downtimes in cash flow, and adjusting
purchasing as necessary it will be much easier to keep your business afloat.
How to create a Cash Flow Forecast
Cash Flow
Forecasts can be created very easily using spreadsheet programs such as Excel.
Decide whether you want it for three months or for a whole year, set up the
monthly columns as appropriate and then look at your bank account to get your
starting balance.
Once all the
incomes and expenditures have been estimated the figures should be entered into
the forecast. The incomes for each month should be added to the cash position
and the expenses deducted from it. Once all the
data has been entered you should be able to clearly see if there are any months
when the cash position looks like it is likely to go into the negative. If so
then you can determine what you need to do about it. You may need to delay a
planned purchase or alternatively try and source some finance to get you
through. Cash Flow Forecast Template Available
Please email
me with your email address if you would like me to forward you a template to
use for your Cash Flow Forecasts.
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