A cash flow forecast is designed to help you understand the likely flows of cash into your business (In-Flows) and out of your business (Out-Flows) during a given future period of time. Typically, a cash flow forecast looks at the 12 months ahead and calculates your cash position on a monthly basis.
In this article, we’ll provide you with a free cash flow forecast template. We will also provide you with step guidelines on how to complete it for your own small business.
If you want your cash flow forecast to stay constantly up to date, we suggest using a small business accounting system instead. We recommend Xero because it’s easy to use, highly regarded by users and competitively priced for small business.
Free Cash Flow Forecast Template
We believe your cash flow forecast is the single most important financial statement that your business can rely upon. This is because maintaining cash flow is crucial to the health and survival of your business.
Download our free cash Flow forecast template. This is available in MS Excel and Google Spreadsheet, see below.
(Note: If you download either doc, you can copy and save
as your own and then edit the content as you wish)
How to Complete Your Free Cash Flow Forecast Template
The cash flow forecast template is designed to be as easy for you to use, even if you are new to spreadsheets. Enter your forecast numbers in the white cells and the grey coloured cells will automatically be calculated. But try not to break the formulas in the grey cells or the calculations will not adding-up automatically.
If you are new to cash flow forecasting, we’ve added simple explanations in some of the cells to make things as easy to follow as possible. Just hover over any cell that has a red triangle in the top right-hand corner and a note will pop up to help you.
Let’s start by completing the cash in-flows for your business.
1. Estimate Your Sales and Other In-Flows (A)
Note: Out-flows are indicated as (A) in your free cash flow forecast template.
If you are already trading as a business, the best way to predict future sales (and other in-flows of cash) is to look at what happened in the same month last year. In other words, the past is your best predictor of the future.
To increase the accuracy of your forecast, consider any factors that may impact your future performance. For instance, a new competitor that may have a negative impact on your sales. Or the addition of another salesperson that may help you to realistically increase sales in the next period. If you are already trading as a business, this information should also be in your business plan.
If you’re just starting up and you don’t have a past trading history, you’ll need to research your market and calculate your best estimate of what you think you can realistically achieve. Because you have no historic numbers, we recommend being conservative about the sales revenue you forecast. This will reduce the risk of running out of cash, which is what any startup needs to avoid.
You may have other cash in-flows, for instance a business loan. If this is the case then enter the loan you expect the receive in the month you think it is most likely to arrive.
Now you have finished predicting your future in-flows, we can consider the payments (or out-flows) you are likely to make.
2. Work-out When You’ll Get Paid
The simple way to do this is to review the payment terms and conditions that you provide to your customers.
If you run a B2B sales operation, it’s likely that you are having to extend credit to your customers. For instance, you may extend 30-days credit before expecting your invoices to be paid. But when will these invoices realistically be paid? If you are using accounting software like Xero it’s easy to run an aged debtor report. If your credit terms are 30-days, it’s likely that it’s taking an average of 45 days to actually get paid.
Use this information to determine which month sales in-flows are likely to arrive in your bank account. This is the month you enter sales into your cash flow forecast.
Now you are ready to look at your outgoing payments.
3. Estimate Your Expenses and Other Out-flows (B)
Note: Out-flows are indicated as (B) in your free cash flow forecast template.
Your outgoing payments are made up of fixed costs and variable expenses, which are also predicted within your cash flow forecast on a month-by-month basis.
Fixed costs don’t change on a month-to-month basis. For instance; rent, phone use and insurance are likely to be roughly the same each month. Whereas variable expenses usually go up and down in line with sales increasing and falling off. A good example of this is your shipping costs to deliver products to your customers. If you don’t make any sales, you will not incur any of these costs and visa versa.
Now you need to populate your spreadsheet with all of your fixed costs and variable expenses on a monthly basis for the year ahead.
4. Review Your Cash Flow Forecast
Now that you have entered all of your in-flows (A) and out-flows (B) into your cash flow forecast template, the spreadsheet will automatically add up your inflows and then deduct out flows (A-B). What results is called your Net Monthly Cash Flow.
If your Net Monthly Cash Flow is positive, the closing balance will be carried over automatically to become the opening balance of the next month.
You will notice that we have designed the spreadsheet to show negative numbers in red. This will allow you to focus on what you need to do to address negative totals to keep your cash flow positive. As we said earlier on, cash-flow is king for any small business!
And if you’re new to cash flow forecasts and spreadsheets you may find these additional tips useful:
- All values are should in US dollars ($).
- The template shows common options, but they might not all be relevant to your business model. Just add and remove line descriptions as necessary.
- This is a 12-month forecast from January to December. But of course, your financial year may start in a different month. If your year starts in April, delete Jan and put Apr in its place and so on.
- Try to ensure your assumptions regarding cash forecasts are realistic. If you’re starting a new business, we recommend being even more conservative about your cash forecast for the first two years of trading.
- Plan for seasonality or known yearly busy and quiet periods. For instance, if you are running a restaurant, December is likely to be busy. But if run a B2B sales operation, August may be historically a quieter month when your customers take a vacation
- Make sure to avoid negative totals at all costs. When these come up highlighted in red, you need to think about how to change your business operations to get back into the black. Or put another way, you need to maintain positive cash flow or eventually you will run out of cash.
- Your cash flow forecast should reflect you’re the strategies, tactics and budgets in your business plan. For example, if you show travel costs in your business plan budget, then these should show up in your cash flow forecast. If you have sales promotions planned for the spring then these should lead to increased sales revenue in the following months.
The Juice Press
The cash flow of your business is crucial to whether you succeed or fail as a business. We believe that your cash flow forecast is the single most important financial statement as you can use it to help you manage cash flow and ensure the success of your business.
In this article, we have provided you with a free cash flow forecast template and shared with you the simple steps required to complete it.
If you want a more powerful cash flow forecast that stays constantly up to date, we recommend that you use small business accounting software instead. We recommend Xero because it’s easy to use, highly regarded by thousands of users and competitively priced for small businesses.