Cash flow forecasting for SME businesses

A cash flow is the most accurate indicator as to whether your business will survive the first 12 months or the next 12 months. Your business won’t be able to continue trading if you run out of money. If you have a cash flow forecast it can help you to identify where  money might be tight so you can plan in advance.
 
Running out of money without realising is the worst thing that can happen to a business.
 
When preparing your cash flow forecast remember:
 
1. A good cashflow is not just a spreadsheet of numbers, it’s the document that anyone who examines the business will spend the most time reading. It needs to be air tight. Any gaps and whoever is examining it will start to wonder what else hasn’t been thought about.
 
Tip: As the cash flow is being completed, note what you are basing the figures on so anyone reading will know how you arrived at the figures shown.
 
2. The forecast for your business must reflect a realistic balance between sales projections and an accurate costing and pricing of your goods and services.
 
The time spent assessing a realistic sales level is crucial. You should outline exactly how each month you came to that sales figure without forgetting about seasonality. Sales rarely stay the same level throughout the year.
 
3. You will be able to estimate your costs once you’ve outlined the sales for each month. A detailed description will be needed to show how you calculated these amounts. Some amounts you can be certain about (e.g. rent) and some will be estimates (e.g. power and phone charges).
 
4. Check the capacity. Don’t put £60,000 sales for a month unless you know it is physically possible for you to do it.
 
5. Find out information such as average net profit and gross profit amounts for the industry you are working in. If you differ from these averages people will want to know why.
 
 
Cash Flow Planning Template - ABL Business Ltd