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How To Do Cash Flow Forecasting

Estimated Read Time: 4 Minutes


Getting to grips with the cash flow of your business and understanding why it is so vital to ensure it remains in a healthy state may end up being the difference between you keeping your doors open – or closing them for the very last time.

In order to properly manage the cash flow of your business, it is essential to put together regular cash flow forecasts. This is especially important for SMEs who might not be in a position to bounce back should things go off-course financially.

Cash flow forecasting involves measuring the inflows and outflows of cash in your small business. To work out the cash flow of your business for a specific period, you simply deduct cash outflows from cash inflows. In other words, you calculate your cash flow by taking total cash proceeds from your restaurant, then you minus the total cash payments made.

We wrote a blog a while back discussing exactly why cash flow forecasting is so important, but the main things you can take from it as a business owner are spotting a cash gap in due time, managing to secure finance and having an increased insight into the future of your company’s finances.

Sometimes, establishing whether your SME is thriving as much as it should be can be a difficult task. But with a cash flow forecast in place it will become fairly simple to work out whether your business is meeting – or failing expectations.

This is an extremely important aspect of running any business, as there is never a one size fits all solution. Instead, you will need to constantly adjust until you have the perfect balance that suits your individual business venture. Once you have identified areas for improvement, you can put procedures in place to make it happen.

Also, a cash flow forecast will help your business understand its financial standing a lot more accurately. It can help you budget for your business operations, but will also ascertain whether your SME will benefit from a cash injection from a finance provider. Most lenders will expect to see a 12-month forecast for your business when deciding whether to offer a small business loan.

When creating a cash flow forecast, it is important that it is as accurate as it can be, otherwise it will prove to be somewhat useless in the grand scheme of things. Whilst a cash flow forecast is ultimately an estimate of the amount of money that will be moving in and out of your business, it needs to be precise enough that you can make business decisions based on its predictions.

So, finally – how exactly do you go about preparing a cash flow forecast for your small business?

Well, the process itself does not have to be difficult. With some thought and preparation, any business can put together an accurate cash flow forecast that will enable them to make smart business decisions. Nucleus Commercial Finance have shared the basic steps involved below:

How to Create A Cash Flow Forecast:

In order to put together a cash flow forecast, you will need to split the document into three main sections – revenue, expenses and net cash flow.

  • Revenue

The first section should contain information on all of the money coming into the business. This will likely come from sales of products and services. It is also necessary to include details of any additional money coming into the business, such as equity or a small business loan.

The number of items included in the revenue section will vary from business to business, but generally, this section should contain between three and five items. Once you have located all sources of revenue, add them all up to calculate your total income.

  • Expenses

Similar to the first section, this part involves listing all of the expenses incurred by your restaurant. Common items for this section tend to be costs such as staff wages, the rent for your premises, supplier costs and marketing efforts.

It is essential that you consider all expenses incurred by your business and this will include those payments that are a little less regular too, such as quarterly V.A.T payments. You will need to include your own salary as the owner of the business and any repayments for business loans as well.

  • Net Cash Flow

For this section, you should expect to find between 10 and 20 items. Just like before, add all of these together to get a final sum for part 2 of the process.

So, this is perhaps the easiest part of the 3-stage process and it will give you that all important figure that will become the blueprint behind your business succeeding.

You will need to deduct the final sum of your expenses from the revenue your business receives. Once you have done this, the final figure will be the cash you have left.

It goes without saying that this figure needs to be positive if your business is to succeed. If you find that your expenses are likely to outweigh the revenue your company is making, your business will be in a position to deliver a profit. If the final balance is negative, that means that you need to make drastic changes to business operations to ensure that your business stays afloat without creeping too much into the red.

Ultimately, it is worth noting that businesses who are well prepared ahead of hard times are often the ones that end up surviving. Given that 82% of businesses become insolvent due to a cash flow crisis, putting together regular cash flow forecasts is not merely a luxury for any business, but in reality an absolute necessity.

For more SME advice and tips on how to effectively manage your cash flow, read our related posts below. If you are experiencing cash flow challenges or want to realise your business growth plans, Take a look at our range of funding solutions and apply now to get started!





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