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How to Create a Simple Cash Flow Forecast for Your Small Business

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How to Create a Simple Cash Flow Forecast for Your Small Business

Do you worry about the future and specifically whether you’ll have enough money to pay the wages and bills? You’re not alone in this but there is a way to plan and get a rough idea of what the upcoming weeks will look like.

What I do is I prepare a simple spreadsheet for up to twelve weeks and list down all the different revenue sources first. In my case, this is a list of my clients. Knowing the payment arrangements I have made with each client, I then put in the spreadsheet when I expect them to pay. I have some who pay at the end of the month, others who pay with pre-approved credit card authorisations on particular days in the month and others that pay on invoice.  I then total the income for each week.

Once I’ve got the income listed in the spreadsheet I then turn to my payments. Again, I list done each payment by the name of who I’m paying and put in the spreadsheet the amounts I have to pay in the relevant weeks. These are the payments that you pay from your bank account and includes any payments that will be paid via direct debit. I then total the payments for each week.

For costs that are paid from my credit cards, I list these separately and if I’m using more than one credit card, I list the payments for each credit card and total each card’s payments. Depending on your ability to pay, you will need to make sure that you pay funds into your credit card to cover the payments before they are charged to the card. In my case, I add up the totals for each month and make that payment at the beginning of the month and then I know I’m fine until the next month.

The spreadsheet now has a total for income, a total for payments from the bank account and totals for payments charged on the credit cards. I then calculate a net cash flow figure by subtracting the payments and credit card charges from the income. If there’s more income that expenses, that’s great. However, if the payments are more than the income, I know I have a problem.

The final numbers that I put in the spreadsheet are the balance of the bank account at the beginning of the first week and then I add net cash flow figure to determine the bank balance at the end of the week and carry that forward to the following week and so on. When the bank balance is negative, this tells me that I either need to find a way to get more money in the bank account that week or I will need to defer a payment.

The best action is to get more money in the bank and this may mean either chasing up outstanding invoices to get them paid and/or looking to sell more and increase the overall revenue. There is also the option of eliminating unnecessary expenses which I wrote about in my article Make More Profit By Eliminating Unnecessary Expenses in Your Small Business”.

Bear in mind that this cash flow forecast is a forecast. It’s a bit like the weather forecast, it’s what the best view is of what the weather is expected to be based on the information the meteorologists have at the time and it’s always changing. The same with the cash flow forecast, it is your best idea of what you think the income and payments will be over the coming weeks. It isn’t set in stone and it will change. What it does do is give you a basis for making decisions about the business and can help to clarify your position so that you have a clearer picture of your position.

I recommend using an eight to twelve week period and update it each week by extending the weeks out so that you always have the same period planned. I have found this a really useful strategy to use to give me a snapshot of what is happening in my business even though I have access to full accounting records. The spreadsheet is quick and easy to maintain once you’ve set it up the first time. You’ll be surprised how much clarity you’ll have from using this process.

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