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Cash flow forecast

What is a cash flow forecast?

A cash flow forecast is a financial statement that outlines a business's expected cash inflows and outflows over a set period. The forecast is usually broken down into months, quarters, or years and includes all cash that is expected to be received and paid out during that period.

A cash flow forecast can help a business owner to identify potential cash shortages or surpluses, anticipate upcoming financial needs, and make informed decisions to optimise cash flow. By creating a cash flow forecast, business owners can gain a better understanding of their business's financial health and take action to ensure that they have sufficient cash flow to meet their obligations.

Key takeaways

  • A cash flow forecast outlines a business's expected cash inflows and outflows over a set period.
  • It helps identify potential cash shortages/surpluses, anticipate upcoming financial needs, and make informed decisions to optimize cash flow.
  • A cash flow forecast provides a clear picture of a business's financial health, which is useful for making informed decisions about spending, investments, and other financial matters.
  • It is essential for securing financing as lenders want to see a clear picture of a business's cash flow before extending credit.
  • Creating a cash flow forecast involves estimating cash inflows and outflows, identifying the timing of cash flows, and updating the forecast regularly.

Why is creating a cash flow forecast for your business so important?

A cash flow forecast is crucial for several reasons:

Make informed decisions

A cash flow forecast provides a clear picture of a business's financial health, allowing business owners to make informed decisions about spending, investments, and other financial matters.

Anticipate cash shortages/surpluses

By analysing expected cash inflows and outflows, business owners can identify potential cash shortages and take steps to address them before they become a problem. They can also manage potential surpluses, allowing them to plan for investments, debt repayments, and other opportunities that may arise.

Secure financing

A cash flow forecast can be a powerful tool for securing financing, as lenders will want to see a clear picture of a business's cash flow before extending credit.

How do you create a cash flow forecast?

Creating a cash flow forecast can be a straightforward process, as long as you have a good understanding of your business's finances.

Here are the steps to follow:

  1. Estimate your cash inflows: This includes all cash that you expect to receive during the forecast period. This may include sales revenue, loan proceeds, investment income, or other sources of cash.
  2. Estimate your cash outflows: This will consist of all the cash that you expect to pay out during the forecast period. This may include rent, salaries, utilities, taxes, inventory, and other expenses.
  3. Identify the timing of cash flows: The timing of cash flows is critical in a cash flow forecast. It's important to estimate when cash inflows and outflows will occur, as this will help you identify potential cash shortages or surpluses.
  4. Update your forecast regularly: A cash flow forecast is only useful if it is accurate and up-to-date. It's essential to review and update your forecast regularly, to ensure that it reflects any changes in your business's financial position.

Have you ever thought about invoice finance to help improve your cash flow?

Invoice finance allows you to release cash quickly from your unpaid invoices.

As your lender, we can release up to 90% of your invoices within 24 hours. On payment of the invoice from your customers, we will then release the final amount minus any fees and charges. There are different types of invoice financing options available to businesses depending on the situation and the level of control they require in collecting unpaid invoices.

We are an invoice financing company who offer a solution whereby payments are collected on your behalf managed by our team of expert credit controllers so you can focus on running your business. Our Confidential Invoice Discounting solution is offered to businesses who want to maintain their own credit control processes, therefore this remains strictly confidential so your customers are unaware of our involvement.

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The benefits of invoice finance companies such as Novuna Business cash flow

  • Boost your cash flow without having to wait up to 120 days for your customers to pay you

  • Release up to 90% of the invoice straight away, and the final 10% when the invoice is settled

  • Access funds within 24 hours from initial appointment with our revolutionary digital onboarding process

  • Benefit from our in-house credit control processes, allowing you to focus on running your business, instead of chasing clients for payment

  • Six month trial period followed by a rolling contract

Want to understand more Cash Flow Finance terms?

Our Cash Flow Resource Hub has been set up to help SME's with cash flow finance advice, tips and resources to help with their cash flow position.

We explore ways you can begin improving your cash flow situation and start getting your business on track to positive cash flow.

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