Preparing A Cash Flow Forecast A Step-By-Step Guide

Preparing A Cash Flow Forecast: A Step-By-Step Guide

Preparing your company’s cash flow forecast isn’t something you should do as a mere formality or as part of the general accounting process. It’s one of the primary tools you can use to keep your business on track and profitable in the long term.

A cash flow forecast shows whether you have enough money coming in to cover all your expenses, plus enough left over to make the most of any opportunities that might arise during the coming months or year.

Suppose you’re looking to start or grow your business. In that case, the first step is to figure out how much money you’ll need at what point in time, and a cash flow forecast helps you manage your finances and predict your income and expenses over time, so you’ll know how much money you can spend, save, or invest in the future.

Creating a cash flow forecast, allows you to‌ predict the future with greater accuracy, evaluate potential strategies to grow your business, and make better financial decisions overall. It can be even easier if you use the correct invoice software along with the right approach.

If this concept seems complicated to you, then don’t worry. We’ve outlined ten steps to help you prepare your cash flow forecast below.

But before that, let’s first understand 

What Is The Cash Flow Forecast?           Preparing A Cash Flow Forecast A Step-By-Step Guide

Cash flow forecasts predict a company’s income and expenses during a specific period. A cash flow forecast is not just an income statement.

It predicts how much money will come in and out of your business during a given time period, including sources of revenue and where your money will be spent.

It includes fixed payments (like rent or loan repayments) as well as variable payments (like stock inventory), capital expenditure, and cash needed for working capital.

It predicts whether a company will have enough money to continue operating its current business plan or whether more funding needs to be raised via loans or new investors.

To sum up, a cash flow forecast is an essential business tool that provides detailed insight into how much cash you will have at your disposal in order to sustain your business.

If not prepared correctly, it can be detrimental and misleading rather than helpful. In other words, it can make or break your business.

Now let’s discuss the 

Ten Steps To Follow To Prepare Your Cash Flow Forecast 

Step 1: Analyze Your Current Cash Flow

Analyze Your Current Cash Flow

Before predicting your future cash flow, you need to be aware of your current cash flow. An important part of financial planning is understanding where your money comes from and goes each month, so take a few minutes to analyze accounts payable & receivable and understand what drives cash in or out of your business account.

This will provide you with an understanding of what kind of limits may exist for how much cash you will have on hand at any given time in any given month. It will give you an idea about how much debt financing may be available for working capital versus additional capital expenditures.

Step 2: Forecast Future Receivables

If you generate invoices regularly, you can forecast receivables by applying your historical ratio of accounts receivable to accounts payable. This will give you a view of what your business’s future credit line might look like, and you can use that number in determining how much cash flow will be available when it comes time to pay bills.

Also, consider using invoice software, which can help forecast invoices based on past performance and projected growth. Invoice software offers detailed reports on account activity and connects directly to online payment services, so there’s no need to enter data manually or check to process.

With an online invoice generator, you can take advantage of tools for accepting electronic payments from anywhere at any time.

Step 3: Forecast Future Payables

Forecast Future Payables

If you’re anticipating additional invoices that may come due in three months, note them down. By projecting these future payables, you can better determine how much cash will be needed and when. The faster your company brings in receivables, the less money it needs upfront to pay its bills as they come due.

You should also consider whether any enormous expenses are coming up, for example, if you need new machines or equipment and build them into your forecast.

Once again, accountants do all of these calculations for businesses every day, but sometimes we don’t consider what those costs might mean to our business finances until we start calculating our forecasts ourselves.

Step 4: Calculate Your Working Capital Needs

Working capital is what you need to meet your cash obligations and fund growth. It’s also important to gauge your company’s financial health.

The ratio of current assets (which includes cash, inventory, accounts receivable, and so on) divided by current liabilities (such as accounts payable, accrued expenses, short-term loans from investors or other entities) will tell you how much working capital your business has available ‌to support.

Calculating your capital needs will help you better understand the needs of your business and how you can meet them. Of course, running a business isn’t just about having enough cash on hand. Sometimes, it’s also about not spending too much when you don’t have any money coming in yet.

Try tracking your expenses with an online expense tracker to help keep your costs down and cut out frivolous spending until you start bringing in revenue.




Step 5: Balance Sheet Analysis

Balance Sheet Analysis

In addition to your income statement, we also suggest you perform a balance sheet analysis on your business. A balance sheet is an overview of your assets and liabilities as they stand at a given point in time, often at year-end, and will serve as an excellent reality check when preparing your cash flow forecast.

It’s relatively simple to perform. You need to add all your company’s assets (i.e., all things that can be converted into cash) and subtract any debt obligations or other liabilities (i.e., what must be paid with cash). The resulting figure shows how much cash your company has available at that particular time.

This number should be compared with each month’s expected revenue figure over twelve months and compared to your cash expenses for working capital needs.

Remember that operating expenses significantly impact cash flow, and capital expenditures have no immediate effect on cash flows.

Step 6: Develop Statement Of Cash Flows

The statement of cash flows is perhaps one of the most important financial statements you can use to help manage your business. The statement of cash flows provides information about how money flows in and out of your business from operations, financing, investing, and financing. It lists each type of cash flow or inflow and outflow during a period.

This information can indicate whether your company will have enough money for day-to-day operations or will have to rely on new investment sources for additional funding needs.

Developing a cash flow statement will help you analyze trends related to cash flow and finances over time. You can even consider using this cash flow statement as part of your business plan while seeking external investors.

Step 7: Pay Off High-Interest Debt    Pay Off High-Interest Debt

When preparing your cash flow, paying off high-interest credit cards or other debt should be your major step. This will save you from paying unnecessary interest charges and provide you with more cash for other financial endeavours.

You can also use an online budget spreadsheet or Cash Flow Software so that you can accurately track your income and expenses.

This way, you can save money by tracking your income and expenses, helping you to get ahead financially. Save money today with online cash flow management tools!

Step 8: Create An Average Monthly Figure

You must create an average monthly figure when determining your cash flow forecast. A single transaction could distort your forecast if it were so large that it didn’t fit within your average, so avoid skewing your results by creating a stable average monthly figure based on your individual transactions.

Creating an average monthly figure also helps your business to have more clarity about its cash flow and assists you in planning for fluctuations in the future.

Step 9: Calculate Net Income (or loss)

Calculate Net Income

Calculate your net income (or loss) for each month. This is your total sales minus your business expenses. You can use cash flow software for step 9 or add up all of your costs and subtract that from all of your receipts to get an approximate number for each month.

Whichever method you choose, ensure that every line item expense is included.

If you don’t have any revenue yet, just keep track of expenses as they come in so that you will be able to compare them once revenues start rolling in.


Also Read: 10 Ways to Prepare a Cash Flow Statement Model That Actually Balances


Step 10: Review, Monitor, Adjust, Repeat

Once you’ve completed steps 1-9, you should have a monthly cash flow forecast. Sit back and have a look at it. This is where it becomes obvious how important month-to-month consistency is in your business’s cash flow.

If you see gaps, increasing or decreasing trends in income or expenses, or anything else out of whack, that’s when step 10 comes into play: monitor, adjust and repeat.

The whole process repeatedly happens until your numbers are right on target every month. Cash management is all about monitoring adjustments, so don’t be afraid to go through these steps again if you need to and make those necessary changes.

Invoicera Best Invoice Software

Invoicera Best Invoice Software

If you want to manage your invoices and expenses as quickly as possible, look no further than Invoicera!

Invoicera is the invoice generator software that comes with everything you need in order to create custom invoices, generate accurate reports, and track business expenses.

If you’re looking for professional invoice software that can save you time and money, then Invoicera is the one-stop solution.

With Invoicera, you don’t have to waste time creating your custom invoices from scratch. You just have to place your company’s information and logo, choose a standard or customized invoice layout and style, add itemized prices, taxes, or discounts, and that’s it. All within seconds!

So what are you waiting for?

Get it now! Download Invoicera and have all your documents in one place. It’s time to get organized with an online expense tracker.

Sign up now and claim your free trial today.


New business owners need to realize there is no simple, one-size-fits-all approach when it comes to creating financial forecasts. Because of that, it’s critical to seek help from advisors and professionals who know how your industry works so you can make sure you set yourself up for success from day one.

Cash flow software can be valuable in helping you do just that. Once your plan is written down and in black and white, it’ll be more accessible than ever to identify ways you might improve your business before you go into any official debt or hire any employees.

We hope you liked our ten steps to Prepare a Cash Flow Forecast. If so, please share it with your friends and colleagues.

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