We’ve crafted a simple, step-by-step guide tailored to assist small businesses and sole traders in cash flow forecasting without relying on specialised software.
- Determine Your Planning Horizon
Decide the timeframe you want to cover in your cash flow planning. Whether it’s a few weeks or several months, aim to plan as far ahead as you can make accurate predictions. Established businesses with a predictable sales pipeline and historical data can extend their planning horizon. For newer businesses with limited data, keep in mind that longer projections may be less precise. Don’t fret if you can’t plan far ahead; your cash flow forecast should evolve as circumstances change or more precise estimates become available.
- Include All Income Streams
For each week or month in your cash flow forecast, create columns for different types of income. Begin with sales, referencing previous years’ figures if available. Input the figures based on when cash is expected in your bank account, considering invoice payment schedules or bank clearance times. Don’t forget to account for non-sales income, such as tax refunds, grants, shareholder investments, royalties, or license fees. Sum up the figures in each column to calculate your net income.
- Itemise Expenses
List all your expenditures for each week or month, including items like rent, salaries, supplier payments, materials, assets, bank loans, fees, charges, marketing, advertising spend, and tax bills. Sum up the totals for each column to determine your net outgoings.
- Calculate Running Cash Flow
Subtract your net outgoings from your net income for each column to obtain a running cash flow figure. A positive value indicates more cash coming in than going out, while a negative value suggests spending exceeds income. Maintain a running total week to week or month to month to visualise your cash flow forecast over time. Consistently negative periods might signal potential issues, prompting proactive planning to meet financial commitments. Conversely, sustained positive months may indicate opportunities for expansion or investment.
If we can help you with your existing, business, side hustle or perhaps start up business in 2024 then please get in touch with Sean from Forest Bookkeeping on 01933 213223 or email sean@forestbookkeeping.co.uk.