Senior businesswoman is doing paperwork in her stock factory. Concept: What is a cash flow forecast?
By: rkapur
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What Is A Cash Flow Forecast?

Your company’s sales may be growing, and your profit margins could be high, but at the end of the month, you may not have enough money to pay your employees and suppliers. Many small business owners are confronted with this problem. What’s the solution? A cash flow forecast can help you to anticipate and plan for your future cash needs.

The cash flow forecast could also tell you when your company would have surplus cash. You could use this information to plan how you will deploy these extra funds.

What is a Cash Flow Forecast and why is it essential for your business?

A cash flow forecast is a projection or an estimate of the amount of money that your business will receive and pay over a specific future period. You could have a weekly, monthly, quarterly, or yearly forecast.

It isn’t necessary that this forecast is accurate down to the last dollar. But it will give you the information that you need to plan for the weeks and months ahead.

Don’t make the mistake of thinking that your cash flow and your profit is the same thing. Read Cash Flow vs. Profit to understand the difference. Remember that a business that is incurring losses could have sufficient cash and continue to remain operational. However, if it runs out of money and becomes insolvent, it may have to close down.

How can a cash flow forecast help your business?

An accurate cash flow forecast provides several benefits:

It allows you to plan for the future – your cash flow forecast may tell you that you will need funds in, say, six months. This gives you adequate time to arrange money. You could consider raising a loan if you think that is necessary.

On the other hand, the forecast may tell you that you will be cash surplus at the end of the year. Based on this information, you could think about repaying your loans or investing in new equipment.

It could help you get a loan – some lenders may ask to see a cash flow forecast before they process your loan application.

Your cash flow forecast could help in the business decision-making process – entrepreneurs can compare their actual cash flow figures with their forecast. If there is a variation, you could take corrective action. If you notice that payments to workers are in excess of the forecast, you could think about ways to reduce your employee costs.

You could use your cash flow forecast to improve your credit policy – many small businesses that operate in the B2B segment find it difficult to collect payments from their clients. If you’re finding it hard to manage your accounts receivable, your cash flow forecast will reflect this. The inflows from customers to whom you have sold goods on credit will be less than you expected.

What should you do if you are faced with this problem? One solution could be to modify your payment terms. If you tighten your credit policies, you may lose some customers, but it is likely that your cash flow will improve. Additionally, you could reduce the sums that you lose to bad debts.

How to Create a Cash Flow Forecast for Your Business

Making a cash flow forecast is fairly straightforward. The first step is to estimate the amount of money that your business will receive from various sources. After you do this, you would be required to calculate how you will use the cash that you collect. It’s important to know when you will receive the money as well as when you will use it.

Analyze your sales projections. What will be your sales revenues every week and every month for the next year? Of course, for the purpose of the cash flow forecast, you would be considering your actual receipts from sales. Consequently, a credit sale would be represented in the cash flow forecast on the date on which the money is expected to be received.

Similarly, you would need to calculate how much cash will come into your business and how much will flow out after considering every aspect of your company’s operations.

Here’s a representative list of the details that you would need to collect. Remember that you must estimate the amounts as well as when you will receive or pay the relevant sums.

  1. Receipts from sales.
  2. Payments for wages.
  3. Purchase of materials.
  4. Acquisition of equipment.
  5. Operational expenses.

Every transaction that you expect to result in cash flowing out of your business or into your business must find a place in your cash flow forecast.

A template you can use

Instead of creating a cash flow forecast from scratch, consider using a readymade template. You can simply download this excel Cash Flow Forecast Template.

Although this template may not be suitable for every small business, it will provide you with an idea of how a cash flow forecast works.

The first part of the template (Unit Economics) gives sales revenue per unit and labor and inventory costs per unit. It also provides the gross margin per unit.

The template featured above provides an example of a company that carries out 30 daily transactions or 900 monthly transactions (30 transactions per day X 30 days = 900).

This is an extract from the template providing the details described above:


Unit Economics
Sales (Revenue) $4
Labor $1
Inventory $1
Gross Margin $2
Daily Transactions 30
Monthly Transactions 900


The next section of the template provides details of the dollar values of revenues and expenses. You will see that the company has a negative operating cash flow of $18,900 for April 2017:


Profit & Losses
Revenue $3,600
Labor $900
Inventory $900
Gross Profit $1,800
Rent $2,000
Utility $500
IT $200
Payroll (Mgmt. & Admin) $15,000
Other Operating Expenses $3,000
Total Operating Expenses $20,700
Operating Income ($18,900)


The next section provides details of the other cash flows for April 2017:


Other Cash Flows
Working Capital ($180.0)
Start-Up Costs ($5,000)
Equipment Purchases ($10,000)
Total Other Cash Flows ($15,180)
Total Cash Flows ($34,080)


You can see that the total negative cash flow for the month of Apr-17 is $34,080 ($18,900 + $15,180).

Similarly, the template provides cash flow figures for subsequent months. You will see that several assumptions have been made while carrying out the calculations. For example, the increase in unit sales has been assumed to be 60% in the first month, 50% in the second month, and 30% every month after that.

You would observe that the cumulative cash flow becomes positive only in May-18, which is in the 13th month of operations.

Take a little time to try and understand the template that has been provided. It will give you an idea about how you can use a cash flow forecast for your business.

The bottom line

Would you like to run a business that is perennially short of cash? Or, would you prefer to be in a position where you know with a fair degree of accuracy the amount of money that you would have in your bank in a month, a quarter, or a year from today?

It’s fairly evident that the second scenario is preferable. Making a cash flow forecast will allow you to anticipate and plan for your cash needs. If your forecast tells you that you need to raise money, apply for a business loan to Camino Financial. These are some of the advantages that a Camino Financial loan can offer:

Minimum requirements – we offer loans to businesses that have been operational for as little as nine months, have sales of at least $30,000 annually.

Fast funding – get your funds within two- five days of being granted a loan approval.

Flexible payment terms – choose a payment plan that meets your requirements – repay your loan over two to five years.

Low interest rates – our rates range from 1% per month to 2.5%.

No hidden costs – There are no prepayment penalties or hidden fees.

Request a loan quote today to know instantly if you qualify for one f our business loans.

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