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Atlas Team

How to Create a Cash Flow Forecast

As a business owner, managing cash flow is essential to keeping operations running smoothly. A cash flow forecast is one of the most valuable tools for doing just that. It allows you to predict when money will come into and go out of your business, helping you plan for growth, avoid cash shortages, and make more informed financial decisions. In this blog, we’ll walk you through the steps of creating an effective cash flow forecast so you can gain control over your finances and steer your business toward success.


1. Understand the Basics of Cash Flow

Cash flow refers to the movement of money in and out of your business. Positive cash flow means more money is coming in than going out, while negative cash flow can indicate financial strain. The goal of forecasting is to anticipate these movements so you’re never caught off guard. A cash flow forecast typically covers a set period, such as weekly, monthly, or quarterly. Depending on your industry or specific needs, a longer-term forecast might be more beneficial.


2. Gather Your Financial Data

To create an accurate forecast, you'll need to pull together essential financial information:


  • Sales Projections: Estimate future sales based on past performance, market trends, and any upcoming changes (like new product launches or marketing campaigns).

  • Receivables and Payables: Identify when you expect to receive payments from customers and when you need to pay suppliers or employees.

  • Operating Expenses: Factor in fixed and variable costs, such as rent, utilities, salaries, and production costs.

  • Debt and Loan Payments: Include any debt repayments or loan interest that needs to be accounted for.


3. Estimate Your Cash Inflows

Start by estimating the cash your business will receive. Cash inflows typically come from:


  • Sales Revenue: Your primary source of income. Use historical data to forecast future sales, adjusting for seasonal trends or any business-specific factors.

  • Accounts Receivable: These are the payments you’re expecting from customers who have already been invoiced but haven’t paid yet. Make sure to factor in the timing of these payments—late payments can affect cash flow.

  • Other Income: Include any other sources of cash such as interest, grants, or loans.


4. Estimate Your Cash Outflows

Next, estimate the cash going out of your business. Cash outflows include:


  • Operating Expenses: These are the regular costs needed to keep your business running, such as payroll, utilities, rent, and insurance.

  • Supplier Payments: This includes any goods or services your business needs to purchase from vendors. If you have credit terms, include the timing of these payments.

  • Taxes and Loan Repayments: Make sure to account for upcoming tax payments or loan obligations, as missing these can have serious consequences.


5. Create the Forecast

Now, it’s time to pull everything together. Create a simple spreadsheet listing your cash inflows and outflows by week or month, depending on your forecasting period.

Here’s a basic structure for your forecast:


  • Opening Cash Balance: This is how much cash you have at the beginning of the forecast period.

  • Total Cash Inflows: Sum up all the money you expect into your business.

  • Total Cash Outflows: Add up all the expenses you’ll need to pay.

  • Net Cash Flow: Subtract total outflows from total inflows. This shows whether you’re expecting a cash surplus or deficit.

  • Closing Cash Balance: This is the forecast period's ending balance (opening cash balance + net cash flow).


6. Review and Adjust Regularly

Cash flow forecasts are living documents — they should be updated regularly based on actual performance and changes in your business. Set aside time each month to review your forecast, compare it to exact figures, and adjust as necessary. This will give you an accurate and up-to-date picture of your financial health.


7. Use Technology to Simplify the Process

You don’t need to build your cash flow forecast from scratch. Many accounting software platforms and apps offer built-in forecasting tools, allowing you to automate much of the process. This not only saves time but also ensures accuracy and ease in making updates.


Benefits of Cash Flow Forecasting

Creating a cash flow forecast is more than just a financial exercise—it’s a proactive business strategy. Here’s how it benefits you:


  • Prevents Cash Shortages: By anticipating cash shortfalls, you can arrange for financing or adjust expenses before they become a problem.

  • Supports Decision-Making: It helps you make smarter decisions about investments, hiring, and growth strategies.

  • Improves Relationships with Lenders: A detailed forecast shows lenders you’re financially responsible and organized, which can increase your chances of securing loans or credit.

  • Reduces Stress: Having a clear picture of your cash flow alleviates anxiety about covering future expenses.


Final Thoughts

Creating a cash flow forecast is essential for any business owner looking to stay on top of their finances and plan for sustainable growth. With regular updates and thoughtful analysis, you’ll gain valuable insight into your business’s financial future and set yourself up for long-term success. If you’re ready to improve your cash flow management but need assistance, consider reaching out to our expert bookkeeper or fractional CFOs at Atlas Services to help you and your team streamline the process. 

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