A good cash flow forecast will show you how long your business can weather a storm. Once you have the data in one place, it will also help with every business decision.


Agilis CA is here to help breakdown how you can do this as a small business owner. We will discuss the importance of cash flow forecasting, and what information is needed to create a cash flow plan.

If any assistance is required, please feel free to contact us.


Why is a Cashflow Forecast Important?

cash flow forecast is an important tool for business planning as it is vital to understand the cash that is coming in and out of your business.

A cash flow forecast will show you how long your business can continue to survive on current sales levels, by showing you how much money you will have in the bank at the end of a period.

It will present you with an understanding of what the revenue drivers are in your business, visibility of your expenses and what is in your control. Having this information in a forecast will also allow you to prepare and plan for different scenarios, distinguish priorities, and understand the outcomes of different options such as diversification, giving you a proactive tool to deal with uncertainty.

As a small business owner, if you are seeking funding in the form of a loan, applying for business support, or just establishing your long-term survival plan, you will need a cash flow plan.


What Information Do You Need to Create A Cash Flow Forecast?


Agilis Books can help you create a cash flow forecast, with the following requested:


1.     An understanding of where your cash is coming from.

Start with the sales revenue – break your sales figures up by product line and across channels. This will show you where the cash is coming from.

For example:

Does 80% of your revenue come from only 20% of your products?

Do you sell to different markets and does one deliver more revenue than others?

Are some of your products high value but low volume or low value at high volume?

The data you collect will enable you to ask questions, such as can you reduce margin to lift sales, can you push volume up or are there other channels to sell through?

Make sure you include all other revenue streams, such as grants, tax refunds or investment in your cash inflows.


2.     An understanding of your expenses – where is the cash going to?

This will include all the costs associated with your business, including rent, wages, supply materials, bank loan fees and charges, tax bills, and electricity.

If you have a bank loan, include the details such as the length of the term and the monthly payments.

Your cash flow plan should also include tax payments, when they are due, and any capital expenditures.

Some of your variable expenses will directly relate to revenue such as freight or materials. When your sales stop, these will drop too, so your cash flow plan should reflect this relationship for you to scenario plan.

You should also be aware of your controlling expenses – what costs are fixed and what are the variable costs you can control? You may not be able to stop fixed expenses like rent, power and internet bills, but you could reduce the cash going out on petrol and travel, cleaning, and even directors’ drawings.


3.     Making informed decisions in your business

A good cash flow forecast will collate all the data from your business in one place and allow you to plan and work out your business’s durability. It will also help you make decisions around staffing, purchasing inventory, ordering supply materials, or investing in growth.

Please note, it is worth remembering that a cash flow plan is a different tool to a budget. Here is an example:

A budget will show sales, but a cash flow plan will show the cash benefit of those sales. If you offer credit to customers, your sales may not result in immediate cash flow.



Want to Create a Cash Flow Forecast for Your Small Business?

If you do not know how to get this information from your accounting software, contact Agilis Books about which reports to run as you may need a combination of accounting software reports and projected figures.

Use the information above to source the data you will need, and if you ever need any help Agilis Books is always here to guide you.

We can help you build a forecast plan that gives you cash flow projections to assist your small business decision making.


This blog was originally published by BOMA, but has had edits made by Agilis Books for the benefit of our readers.