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What is cash flow forecasting?

Regardless what size your business is, understanding your cash flow is key to helping you plan for the future. Knowing when you’re expecting money to flow in can help you grow and expand your business. Preparing for future expenses will also help you avoid financial difficulties and keep your business in the black.

The basics

A cash flow forecast is very similar to your cashbook, except it is used to project out into the future. Depending on your business, you can look at the next week, quarter or financial year. It can be as simple as a spreadsheet or you can use accounting software to more accurately predict the future. But, as with any business tool, it’s only useful if you’re putting correct, detailed information into it.

The basic flow of funds will include predictions of your starting balance, the income and outgoings during the defined period and then your closing account balance. The nature of the cycle of your business, such as daily versus seasonal, will impact what time period you should be looking at.


When you create the forecast, it’s a good idea to create three alternatives. The first will be your realistic expectations. If you’re doing this for an existing business, you can base this off your past financial data. For new businesses, you may need to do a bit of research to create informed predictions.

The next two versions of your forecast will be based on a positive scenario and then negative scenario. You need to be prepared for an unexpected change to your business, for better or worse. Are you going to need to purchase more stock? What will it look like if past sales growth slows or ceases? Showing that you’re prepared is especially important if you’re seeking capital from lenders.

Putting it to work

Now that you have your cash flow forecast set up, there are a variety of purposes you can use it for.

Knowing when you can expect to have money coming in can help you look into the future and plan for the growth or expansion for your business. This could involve purchasing assets, diversifying your business or bringing on more employees.

You may also be able to predict any potential cash shortcomings or financial trouble. Seeing where outgoings and income don’t align can help you forward plan and find alternative financial inputs, such as a loan or revolving credit facility.

Final note

Understanding the financials of your business, or a business that you’re looking to buy, is an essential step to ensuring success. Being able to predict peaks and troughs will allow you to be prepared and plan ahead, creating a long-term, financially successful business. Try this cash flow forecasting template from Microsoft to get you started.

Forecasting some growth opportunities or cash flow ups and downs? Talk to the Open for Business team at Heartland Bank about bringing your business plans to life.

Lending criteria, fees and charges apply.

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